Federal budget 2017: What your tax breaks cost on the finance minister's books

There are two ways to look at a tax credit: what it savesthe taxpayer, and what it costs the government.

Canadian tax filers will figure out what all the deductions, credits and exemptions mean for their households over the next few weeks.

The Departmentof Finance has already estimatedwhat they'reworth onthe federal books.

With final decisions imminent on this spring's federal budget, the 2017report on federal tax expenditures looks at what's on Finance Minister Bill Morneau's desk as he considers personal income tax changes.

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Before they were elected in October 2015, the Liberals promised to review taxes and "target tax loopholes that particularly benefit Canada's top one per cent." They projected savings of $500,000 in 2016-17, rising to $3 billion by2019-20.

This reviewstarted last summer, but no conclusionshave been released. Maybe that's what the budget's for?

Only some moves are large enough toaffect the "decades of deficits"Morneaufaces.

But size isn't everything. Even inexpensive tax breaks may be worth phasing out if the Liberals are serious about simplifying the tax code.

Too few claimants? Unmet policy goals? High administration costs? There can bemany reasons to shut something down.

The story so far

First came themiddle-class tax cut. But Morneau'sfirst budget didn't stop there.

Here's some of what was cut, and what each was worth:

• Income splitting for families with children (also known as the family tax cut)costabout $1.7 billion ineach of the two years it was available (2014 and 2015).
• The education tax cut for full-time and part-time post-secondary students is projected to cost$770 million and the textbook tax credit is projected to cost $125 million in theirfinal year (2016.) (The Liberals saidthis money would be usedto boost student grants and loans).
• The children's arts tax credit,partly phased out for2016, is worth $30 million, down from $45 million in 2015.
• The children's fitness tax credit, also partly phased out for 2016, is worth $145 million, down from $210 million in 2015.

READ MORE:5 reasons cutting the children's fitness and arts tax credits made sense

The child tax credit, established by the thenConservative government in 2007, was eliminated too. Its$1.6 billion was added to the envelope for the newCanada Child Benefit.

The budgetalso brought in new measures:

• Exempting femininehygieneproducts from theGoods and Services Tax (GST) the "tampon tax" costs the government $35 million.
• Introducing the refundable school supplies tax credit for teachers and early childhood educators is worth $25 million.
• Restoring the labour-sponsored venture capital corporation tax credit for purchases of provincially registered funds hasan estimated cost of $150 million.
• Boosting the northern residents deduction adds another $50 million for 2016.

So, what's next?

Platform promises

The Liberals haven't come throughonothercampaign pledges.

For instance, their first budget deferred lowering the preferential tax rate for small businesses to nine per cent, from its current 10.5 per cent.

Taxing the first $500,000 that a small business earns at a lower ratethan the going corporate tax rate already costs $3.5 billion. Keeping this promise would packa larger punch.

The Liberals also campaigned on cappingthe stock option deduction.

They said aboutthree-quarters of the total deductions weregoingto about8,000 high-income Canadians who deduct an average of $400,000 from their taxable incomes.

But because stock options help startup companies attract and reward talent, theLiberalstook some heat for this idea.

Could they cap annual deductions at $100,000, as they promised, without hurting new business growth?

Left as is,stock optiondeductions are projected to cost $695 million in foregone revenue in 2016.

Close the boutique?

Then there's the advice the Department of Finance might be getting.

Two members ofMorneau'stax review panelKevinMilliganfrom the University of British Columbia and JenniferRobsonfrom Carleton University in Ottawa published papersarguing against"boutique" tax credits.

Targeted writeoffs for specific groups headlinedthe former Conservative government's earlybudgets.

They may score political points, butthey've madethetaxsystem more complex, less efficient and more regressive.

Here's what some of these cost(2016 projections):

• Public transit tax credit: $190 million.
• Canada employment credit (for work-related expenses): $2.3 billion.
• Deduction for tradespeople's tool expenses: $2 million.
• Volunteer firefighters tax credit: $15 million, and search and rescue volunteers tax credit: $2 million.

The fiscal impact of pension income splitting,also introduced in 2007, is currentlyabout$1.2 billion but is it too popular among seniors to cut?

Milliganhas writtenin favour of endingthe age and pension credits for seniors, and boostingthe guaranteed income supplement orold age security instead.

Non-refundable tax credits like thesedon't help low-income seniors (who already pay little or no tax.) To avoid only helping wealthier seniors, tax credits need to be refundable.

Finally, there'stherumour from late last year that the government may start taxingemployer-paidhealth and dental insurance premiums.

It's easy to see the temptation: Not taxing these benefits may cost the coffers$2.6 billion in2016.

But Prime Minister JustinTrudeauruled thisout last month.