Duelling income tax cuts: What voters need to know

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Canada’s 2025 federal election campaign is underway — and the two leading parties have already begun to woo middle-class voters with tax cuts amid tariff and cost of living concerns. Liberal leader Mark Carney and Conservative leader Pierre Poilievre both kicked off their campaigns by unveiling plans to cut to the lowest income tax bracket. Here’s what you need to know about the proposals and who they benefit.  

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What Carney proposed 

Carney promised a “middle-class tax cut” by shaving one percentage point off the lowest income tax bracket.  

According to 2025 tax rates, that means the portion of taxable income that is $57,375 or less would be taxed by 14 per cent instead of 15 per cent. The Liberals said this plan will directly benefit more than 22 million families, with two-income families saving up to $825 a year.  

“My new government will focus on helping hard-working Canadians keep more of their paychecks to spend where it matters most: on homes, groceries and their families,” Carney said in a press release. “Every Canadian should be able to afford necessities, feel secure and get ahead financially — and this tax cut will help them do that.” 

According to the Parliamentary Budget Officer’s tax calculator, this cut would cost $5.9 billion. The Liberals haven’t revealed how they intend to pay for the plan as yet, although Carney’s platform has mentioned “reining in wasteful and ineffective government spending.” 

What Poilievre proposed 

Poilievre pledged Monday that he would cut 2.25 percentage points off the lowest income tax bracket, pushing it down from 15 to 12.75 per cent.  

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The Conservatives said this plan would allow the average Canadian to save $900 and a dual-income family to save $1,800 each year. They estimated the tax cut would cost the government $7 billion in each of the first two years, and $14 billion a year after that, proposing that the tax cut be fully implemented by fiscal year 2027-28. 

Poilievre said his party would provide more details later but stated that this plan would be funded through cuts to government spending including bureaucracy, consultants, “handouts to insiders” and foreign aid.  

“We will also bring in a dollar-for-dollar law that will require ministers to find one dollar of new savings for every dollar of new spending,” he said. “That will drive down the cost and drive up the efficiency, so that we can get value for money.” 

How the tax cuts would work

Canada has a progressive taxation system, which means that different tax rates are applied to different brackets of income earned.

The first bracket, targeted by the measures proposed by Carney and Poilievre, covers income up to $57,375, which is now taxed at a rate of 15 per cent.

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The second tax bracket covers income from $57,375 to $114,750, which is taxed at 20.5 per cent — and so on, up to the top bracket, which covers income above $253,414 and is taxed at 33 per cent. 

Canada also has a non-refundable tax credit called the Basic Personal Amount (BPA) that filers can claim. In 2025, the BPA is $16,129 for taxpayers with a net income of $177,882 or less, which means the first $16,129 of income is essentially tax free.

As an example, a filer who has taxable income of $80,000 would pay no effective tax on the first $16,129 of income, pay 15 per cent tax on income between $16,129 and $57,375, and pay 20.5 per cent on the remaining $22,625.

Cutting the rate of the lowest tax bracket would means any income earned between the BPA of $16,129 and the top of the first bracket $57,375 — a total of $41,246 — would be taxed at the reduced rate.

Who will be helped by these tax cuts?

Rebekah Young, head of inclusion and resilience economics at Bank of Nova Scotia, said the tax cuts directly benefit a majority of tax filers.  

“20 million tax filers (have incomes that) fall under that lowest income tax bracket, and that’s about 64 per cent of all tax filers,” she said.  

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While the tax cuts come to the lowest bracket, those who earn the full amount of the first bracket and above stand to benefit the most in terms of dollar amount.

Preetika Joshi, an accounting professor at McGill University, said that nevertheless the relative impact would be greater on those earning less, because their savings would represent a larger fraction of their overall income. 

“So, even though the dollar amount (in savings) will be the same, how it would benefit the middle class versus high income, would vary,” Joshi said.  

Does a tax cut make sense? 

Joshi said both tax cut plans no doubt appealed to each party’s taxpayer base — but questioned whether the parties needed to help higher-income Canadians, too. 

“(A tax cut) is a significant price if you’re going to be helping every single Canadian who may or may not need the help,” Joshi cautioned. “The real question comes down to the policy objective: Is this meant to help everybody?” 

Brian Lewis, a public policy economist at the University of Toronto’s Munk School of Global Affairs & Public Policy, noted that the policies would not help very-low-income earners at all.

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In 2022, roughly 5.5 million Canadian income tax filers reported incomes of $15,000 or less, close to the BPA for that year ($14,398). They would have paid little or no tax, and thus would see no direct benefit from the tax cut.

He suggested enhancing other existing credits, such as the Canada Workers Benefit or the GST/HST credit as an alternative way of supporting low income earners, if desired.

Young also sounded a cautious note on the costs, noting that while Canada isn’t in a full-blown trade war just yet, it will need the “fiscal firepower” to offer targeted supports to protect the economy in the future as well.  

“As we see these commitments rolling out, we will be watching very carefully to see what the net cost is, how will they be funded — or will they lead to larger deficits?” Young said. “It’s a legitimate question, because, especially with this uncertainty on the horizon, it may mean we are forced as a country to spend (more).” 

• Email: slouis@postmedia.com

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