A majority of Canadians think that Canada is broken after years of stagnant incomes, affordability challenges, rising crime, government failures on basic functions like healthcare and immigration, and a deepening cultural malaise. But decline is a choice, and better public policies are needed to overcome Canada’s many challenges. Kickstart Canada brings together leading voices in academia, think tanks, and business to lay out an optimistic vision for Canada’s future, providing the policy ideas that governments need to ensure a bright future for all Canadians.
Parliament’s return has been accompanied by a particular sense of vigour, it seems, as each of the parties position themselves ahead of an election that looms closer and closer. Pierre Poilievre, for his part, recently announced a commitment to a “tax reform task force” following his opposition to the Liberal government’s proposed capital gains tax increases. With polls consistently indicating that Poilievre’s Conservative Party is likely the government in waiting, this commitment is something many lobby groups, corporations, and interest groups are likely preparing their white papers for, each arguing why certain taxes are too high or why they deserve special preferences.
However, the most important “interest group” in Canada doesn’t have a lobby group or special interest organization advocating for them: families.
Yet families are the most important interest group in Canada. They are the bedrock of our society—everyone has one, whether good or bad. Families shape us into the people we are. They are often the first people we turn to in times of challenge or joy. Regardless of politics or ideology, everyone understands and appreciates that families are essential to society. Therefore, strengthening and supporting families should be a public good that public policy actively works to support.
As I have previously noted, Canada lacks a comprehensive family policy lens that could enhance pro-family outcomes. Without this perspective, governments tend to view taxation and other policies primarily through the lens of individuals rather than family units. While parents in Canada can adjust which parent claims certain tax credits or benefits, they are still taxed as individuals, not as the economic units they function in practice. Pro-family policies should operate at the family unit level, not the individual level, and should aim to remove the barriers, disincentives, and inequities that increase the tax burden on families.
Simply put: the federal government should move to a system of family-based taxation which has good historic pedigree in Canada—it was recommended by the 1966 Carter Commission on taxation—and is present in various peer jurisdictions including France.
Moving to family-based taxation would resolve the inherent inequities in the current tax system between families. It also might even help with Canada’s declining birth rates by ensuring families can keep more of what they earn. Research last year from the think-tank Cardus pointed out that Canadian women are having fewer kids than they say they want, due in large part to opportunity costs in the form of forgone earnings.
Yes, a single tax change is not in and of itself going to solve Canada’s fertility challenges. But measures that allow families to retain more of their income to help cover the costs of raising children can be a key way to recognize the vital role parents play in the future of our society. While those without children shouldn’t of course be criticized for their choices—and tax fairness for families should not be viewed as wedge politics or something—it ought to reflect the practical reality of how most families manage their households, which is as a unit not as individuals.
The challenges of raising children are well-documented, and while Canada’s policy programs are designed to help parents maintain strong links to the labour market, they still fall short of recognizing the unique costs (and opportunity costs) that families face. Shifting to family-based taxation, in this sense, is as much a technocratic policy reform as it is a values-based one.
Unfortunately, debates around pro-family policies can sometimes devolve into polarized tribalism. It becomes perceived as preferencing a particular family structure over another. That’s not the point at all. It’s really about public policy treating families as they are, as opposed to a rather thin conception of family life.
My hope is that, building on the existing cross-partisan consensus that the government has a role in supporting the childcare costs of Canadian families, a similar consensus can emerge for a pro-family tax reform agenda.
The previous Harper government made an effort to address this inequity through the Family Tax Cut. This policy allowed eligible taxpayers to transfer up to $50,000 of income to their spouse for tax purposes, resulting in a non-refundable tax credit of up to $2,000 per year. However, this tax cut was repealed after the Liberal Party’s election win in 2015.
The framing of the measure as more of a generic tax cut as opposed to a structural change to the tax system contributed to the ease at which it was repealed. The Harper government’s careful framing reflected the political climate at the time, which was somewhat cautious about making explicitly pro-family claims. But in doing so it failed to fully articulate the underlying rationale for such a policy.
Additionally, in 2015, the repeal of this tax policy did not generate significant political backlash because Canadians were experiencing record prosperity at the time and the incoming government was able to characterize it as disproportionately benefiting the wealthy. As the New York Times noted in a 2014 article, Canada was home to “the world’s most affluent middle class.” With Canadians feeling financially secure, tax fairness was not a top priority.
The situation now has changed dramatically though. Canada’s GDP per capita is declining, and Canadians are struggling with affordability challenges due to record-level inflation. The current political climate may be more favourable for a future government to revisit tax fairness for families.
Conservative Leader Pierre Poilievre greets his family on stage in Montreal, June 19, 2024. Christinne Muschi/The Canadian Press.
Poilievre, if he is elected, should task his tax reform task force with examining tax fairness for families in addition to focusing on improving the tax system more broadly. Such an effort can benefit from examining pro-family tax regimes in other jurisdictions.
One option worth exploring is the French model, known as the “quotient familial” or family quotient system. This system provides tax relief for families by considering the number of dependents in a household. It works by dividing the household’s total taxable income by the number of adults and dependent children. Each adult counts as one part, while each child adds a fraction of a part. The first two children count as 0.5 parts each, and additional children count as one full part each. The total taxable income is divided by the number of parts, and tax rates are applied to this income. The total tax is then calculated by multiplying the tax owed per part by the number of parts. A benefits cap is applied to ensure that wealthy families do not disproportionately benefit from the policy; in 2024, the cap was set at 1,678 euros per half-part.
Here’s how this could look in Canada: Imagine a family of two adults and three children, or 5.5 parts, with a total income of $150,000. Assuming a $2,500 cap per half-part (similar to the French cap), you would divide $150,000 by 5.5 to get $27,273. The federal tax rate on $27,273 is 15 percent, resulting in a tax of $4,091 per part. The total tax would then be calculated by multiplying $4,091 by 5.5, leading to a total tax bill of $22,500.50 before other deductions or tax benefits.
Under the current taxation system, this same family would be paying $30,192 in income tax before deductions and other benefits. Therefore, under the French model, this family would save $7,692.27 in income tax. While it’s unlikely that a future government could afford such a significant tax cut given Canada’s challenging fiscal situation, the thresholds could be adjusted downward, perhaps to a half-part cap of $1,500 to $2,000, which would significantly reduce the fiscal cost and mitigate against concerns that this would only benefit the rich.
The French model merits serious consideration due to its simplicity and its progressive tax relief for larger families. It acknowledges that having more dependents increases costs for families and recognizes the inherent value of children to our society—a value from which we all benefit.
Whether it be in the U.S. with the Republicans pushing for a pro-family tax credit, the French family quotient tax model, or the Hungarian government’s policy to give a lifetime exemption for women who have four kids or more, political parties around the world are exploring ways to reform the tax system to recognize the important role that families play in society.
Canada has a chance to build off our strong supports for childcare and implement tax reforms that would create one of the most pro-family policy regimes in the Western world. We should be aiming to create a society, especially in these financially stressful times, where the tax system does not act as a disincentive for Canadians who want to build families.
