Will tax cut pledges ease Canada’s cost of living?

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Welcome to the second edition of the Campaign Dispatch, where each day we break down trending economic stories from the 2025 federal election.

The election focus thus far has been on a pair of different – but similar – tax cuts meant to appease Canadians who have been frustrated with the cost of living.

The Liberals are pledging to cut the marginal tax rate by one percentage point, which the party believes will save the average middle-class two-income family up to $825 a year. The marginal tax rate is the tax you pay in the highest tax bracket you reach.

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The Conservatives, however, are promising to cut the lowest income tax bracket from 15 per cent to 12.75 per cent, which the party said will save the average worker $900 per year, or $1,800 for a two-income family.

But does either plan really move the needle for Canadians struggling with the cost of living?

With half of Canadians just $200 away from not being able to pay their bills, according to MNP Ltd., it’s clear any bit of tax relief can help.

Between 2020 and 2024, Canada’s consumer price index, which largely measures the cost of living, increased more than 17 per cent.

Just looking at groceries, the average family of four spent $1,000 per month on groceries in 2019, but that figure has since grown to $1,296 in 2024, according to a report from the Royal Bank of Canada.

Meanwhile, the average family of four is expected to pay $801 more for food in 2025, according to Canada’s Food Price Report, meaning Carney’s tax cut would pay for the increase in food costs this year, and not much else.

The Canadian Taxpayer Federation welcomed the Liberal plan, calling it a “welcome appetizer,” but added that Canadians “are starved for major relief” and need more.

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“Letting Canadians keep more of their own money is a good thing and taxpayers expect all party leaders to announce significant tax relief and savings in the budget,” Franco Terrazzano, federal director of the Canadian Taxpayers Federation, said in a news release.

Terrazzano was more complimentary toward the Conservative plan, however.

“Poilievre is providing significant tax relief for people working hard to make ends meet,” he said in a separate release. “The best way the government can make life more affordable is to let people keep more of their own money and Poilievre’s tax cut would do just that.”

“It’s great to see the two major parties duelling over who can cut taxes the most,” Terrazzano added. “Now we need to see big tax cuts for Canadian businesses to make them more competitive in the wake of American tariffs.”

Both cuts could in theory help Canadians handle their debts as well.

A February report from Equifax Inc. found that the average non-mortgage debt per Canadian reached $21,931 in the fourth quarter of 2024, a year-over-year increase of $654, meaning both plans can at the very least help slow the average Canadian’s debt levels.

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The Liberals and Conservatives aren’t the only ones proposing tax changes.

Instead of income tax cuts, the NDP are promising tax cuts on essential items, including diapers, children’s clothes, heating and telecom services, among others. It’s a similar plan to the GST holiday the Liberal government temporarily gave Canadians during the holiday season extending into early 2025.

The Green Party, meanwhile, is proposing a “Fair Taxation” plan that targets the wealthy, big tech companies and big banks.

Today’s promises

• Conservative Leader Pierre Poilievre is promising to cut the goods and services tax (GST) on all new homes under $1.3 million.
• Bloc Québécois Leader Yves-François Blanchet is promising to table a “Buy Canadian” bill that would encourage the federal government to buy goods made in Canada.
• Liberal Leader Mark Carney pledged to “invest in the Canadian Armed Forces” with the promise of new submarines and to fill the shortage of military members.

Election headlines

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