Cost Estimate for Bill C-364: An Act to amend the Canada Elections Act and to make a consequential amendment to another Act (political financing)

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1 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) Ottawa, Canada 30 January

2 The Parliamentary Budget Officer (PBO) supprts Parliament by prviding analysis, including analysis f macr-ecnmic and fiscal plicy, fr the purpses f raising the quality f parliamentary debate and prmting greater budget transparency and accuntability. This reprt is cnsistent with the Parliamentary Budget Officer s legislated mandate t prvide cst estimates f prpsals befre Parliament. This analysis is based n Statistics Canada's Scial Plicy Simulatin Database and Mdel. The assumptins and calculatins underlying the simulatin results were prepared by the authr and the respnsibility fr the use and interpretatin f these data is entirely that f the authr. This reprt was written by Jasn Stantn, Financial Analyst And with cmments frm Carleigh Busby, Financial Analyst Jasn Jacques, Senir Directr, Csting and Budgetary Analysis Mstafa Askari, Deputy Parliamentary Budget Officer Nancy Beauchamp and Jcelyne Scrim assisted with the preparatin f the reprt fr publicatin. Please cntact pb-dpb@parl.gc.ca fr further infrmatin. Jean-Denis Fréchette Parliamentary Budget Officer

3 Table f Cntents Executive Summary 1 1. Intrductin 2 2. Analysis Federal Fiscal Impact Impact t Plitical Parties 4 3. Cnclusin 6 Appendix A: Appendix B: Summary f Prpsed Amendments 7 Methdlgy 9 Ntes 11

4 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) Executive Summary In Octber 2017, MP Michel Budrias (Terrebnne BQ) intrduced a private member s bill, Bill C-364. The purpse f the Bill is t amend the Canada Electins Act by reducing annual individual plitical cntributin limits while reintrducing public funding fr registered plitical parties thrugh quarterly allwances. There is als a cnsequential amendment t the Incme Tax Act, impacting the amunt individuals can claim as tax credits fr plitical cntributins. PBO estimates that, in ttal, the cst t the federal gvernment will be $45.2 millin in 2018, increasing t $46.2 millin in The reintrductin f a quarterly allwance, which is paid frm the Cnslidated Revenue Fund t registered plitical parties, represents the verwhelming majrity f the cst (Summary Table 1). Summary Table 1 Prjected Ttal Cst t Federal Gvernment Payments frm Cnslidated Revenue Fund Increase in Tax Expenditures Ttal Surce: Parliamentary Budget Officer calculatins based n data frm Electins Canada, Statistics Canada, SPSD/M and PBO frecasts. This quarterly allwance significantly increases the funds available t registered plitical parties. While the Bill prpses reducing the maximum amunts individuals can cntribute, it des nt have a significant impact. 1

5 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) 1. Intrductin Bill C-364, intrduced by MP Michel Budrias (Terrebnne BQ) in Octber 2017, amends the Canada Electins Act by reducing annual individual plitical cntributin limits while reintrducing public funding fr registered plitical parties thrugh quarterly allwances. 1 It als has a cnsequential amendment t the Incme Tax Act, impacting the amunt individuals can claim as tax credits fr federal plitical cntributins. The specific amendments t the Canada Electins Act relate t: 1. A reductin t the Individual Cntributin Limits in 2018, changing frm 2 : $1,575 t $525 in ttal in any calendar year t a registered party; $1,575 t $525 in ttal in any calendar year t the registered assciatins, nminatin cntestants and candidates f a particular registered party; $1,575 in ttal t a candidate fr a particular electin wh is nt the candidate f a registered party t $525 in ttal in any calendar year t a candidate wh is nt the candidate f a registered party; and Frm $1,575 t $1,025 in ttal in any calendar year t the leadership cntestants in a particular leadership cntest. 2. Prviding Quarterly Allwances Payable t Registered Plitical Parties: $ multiplied by the number f valid vtes cast in the mst recent general electin and an inflatin adjustment factr. 3 Additinally, Bill C-364 resulted in an amendment t the Incme Tax Act: Remving the tax credit calculatin rate f 33% fr federal plitical cntributin amunts ver $750; and, Remving the $650 maximum fr the federal plitical cntributin tax credit. This change effectively allws individuals claiming cntributin ttals in excess f $400, up t the ttal maximum as described abve, at a rate f 50%, and increases the maximum federal plitical cntributin tax credit amunt frm $650 t $1,400 in See Appendix A fr a cmplete summary f the prpsed amendments. 2

6 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) 2. Analysis The fcus f the reprt is the fiscal cst f the Bill t the federal gvernment and the financial impact fr plitical parties. The fllwing sectins prvide an analysis f the aggregate data fr 2018 thrugh t Federal Fiscal Impact The prpsed amendments t the Canada Electins Act alter bth the surce and amunt f ttal funds available t registered plitical parties. The Bill seeks t reduce individual cntributin limits and reintrduce a quarterly allwance fund. This allwance fund previusly existed since 2004, and was phased ut in , 5 It is calculated by the Chief Electral Officer, and paid by the federal gvernment frm the Cnslidated Revenue Fund. The fund is based n valid vtes cast t registered parties in the mst recent general electin preceding the quarter, multiplied by a factr ( fr 2018) that is adjusted fr inflatin. Based n histrical vter turnut and future prjectins, PBO estimates the implementatin f a quarterly allwance fund will result in a ttal cst t the federal gvernment f $43.4 millin in 2018, increasing t $44.1 millin in 2021, as shwn in Table ,7 Table 2-1 Ttal Prjected Annual Allwances t Registered Parties Ttal Allwances Paid Surce: Parliamentary Budget Officer calculatins based n data frm Electins Canada, Statistics Canada and PBO frecasts. Despite reduced ttal maximum federal plitical cntributin limits, the changes t Bill C-364 will als result in an increase t the assciated tax credit. Currently, an individual can cntribute mre than $5,000 a year, but nly receive up t a maximum tax credit f $650 fr these plitical cntributins. That is, any cntributins in excess f $1,275 will nt result in a larger tax 3

7 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) credit. The prpsed amendment in the Bill t the Incme Tax Act remves this $650 maximum tax credit amunt, and the new calculatin f the tax credit, fr 2018, is as fllws: 75% f the amunt up t $400 (maximum f $300), and 50% f the amunt between $400 and $2,600 (maximum f $1,100) Individuals are nw nly bund by the new lwer cntributin limits. If an individual reaches the maximum fr plitical cntributins in 2018 with the prpsed amendments (that is, $2,600), their maximum tax credit will be $1,400, mre than dubling their maximum tax credit. Using SPSD/M, PBO estimated the impact f the amendments t the ttal federal plitical cntributins made and claimed n individuals tax returns, as well as the assciated tax credits. 8 These tax credits, r tax expenditures, represent a cst t the federal gvernment, and wuld increase by 9, 10 apprximately $1.8 millin in When accunting fr the public funding paid frm the Cnslidated Revenue Fund, the ttal cst t the gvernment in 2018 is apprximately $45.2 millin, as displayed in Table 2-2. Table 2-2 Prjected Ttal Cst t Federal Gvernment Payments frm Cnslidated Revenue Fund Increase in Tax Expenditures Ttal Surce: Parliamentary Budget Officer calculatins based n data frm Electins Canada, Statistics Canada, SPSD/M and PBO frecasts Impact t Plitical Parties A prtin f the plitical party funds stem frm individual cntributins. Reducing the limits n these cntributins des nt significantly impact the funds prvided t parties, as shwn in Table 2-3. The majrity f cntributins were less than the new prpsed annual limit f $2,600 11, resulting in a ttal estimated reductin f $0.3 millin in

8 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) Table 2-3 Prjected Ttal Individual Cntributins Current Prjected Individual Cntributins Prjected Individual Cntributins after Bill Difference Surce: Parliamentary Budget Officer; The Scial Plicy Simulatin Database and Mdel (SPSD/M) v On the ther hand, the reintrductin f a quarterly allwance fund, as explained in the previus sectin, increases funds t registered plitical parties wh meet the requirements as utlined in Canada Electins Act. Overall, registered plitical parties wuld see a ttal net increase in plitical funds f apprximately $43.1 millin in 2018, increasing t $43.9 millin in 2021, as shwn in Figure 2-1. Figure 2-1 Ttal Prjected Increases t Registered Plitical Party Funds $ millins Surce: Parliamentary Budget Officer calculatins based n data frm Electins Canada, Statistics Canada, SPSD/M and PBO frecasts. 5

9 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) 3. Cnclusin The changes prpsed by Bill C-364 will result in a net increase in the amunt f funds prvided t registered plitical parties. While Bill C-364 reduces the federal plitical cntributin limits fr individuals, this is mre than ffset by the increase frm the reintrductin f the quarterly allwance fund. The verwhelming majrity f this increase is a result f the reintrductin f public funding fr registered plitical parties thrugh quarterly allwances. This will be allcated frm the Cnslidated Revenue Fund, which directly increases the cst t the federal gvernment. While there is a negative financial impact t plitical parties with the decrease in the individual cntributin limits, these specific amendments are nt significant. Hwever, this cmes at a cst t the federal gvernment in the frm f increased tax expenditures. PBO estimates that remving the upper threshld fr the calculatin f the federal plitical cntributin tax credit, as well as increasing the direct spending n funds fr plitical parties via the quarterly allwance fund, will cst the federal gvernment $45.2 millin in 2018, increasing t $46.2 millin in

10 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) Appendix A: Summary f Prpsed Amendments Current Prpsed Canada Electins Act: Cntributin limits 367 (1) Subject t subsectin 373(4), n individual shall make cntributins that exceed Canada Electins Act: Cntributin limits 367 (1) Subject t subsectin 373(4), n individual shall make cntributins that exceed: (a) $1,500 in ttal in any calendar year t a particular registered party; (a) $500 in ttal in any calendar year t a particular registered party; (b) $1,500 in ttal in any calendar year t the registered assciatins, nminatin cntestants and candidates f a particular registered party; (b) $500 in ttal in any calendar year t the registered assciatins, nminatin cntestants and candidates f a particular registered party; (c) $1,500 in ttal t a candidate fr a particular electin wh is nt the candidate f a registered party; and (c) $500 in ttal in any calendar year t a candidate wh is nt the candidate f a registered party; and (d) $1,500 in ttal in any calendar year t the leadership cntestants in a particular leadership cntest. (d) $1,000 in ttal in any calendar year t the leadership cntestants in a particular leadership cntest. Canada Electins Act: Cmputatin f fund 445 (2) An allwance fund fr a quarter is the prduct f the number f valid vtes cast in the electin referred t in subsectin (1) multiplied by the applicable fllwing number: (a) $0.255, fr the quarter that begins n April 1, 2013 and the three fllwing quarters; and (b) $0.1275, fr the quarter that begins n April 1, 2014 and the three fllwing quarters. Canada Electins Act: Cmputatin f fund 445 (2) An allwance fund fr a quarter is the prduct f: (a) $ multiplied by the number f valid vtes cast in the electin referred t in subsectin (1); and (b) the inflatin adjustment factr determined under sectin 384 that is in effect fr that quarter. 7

11 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) Current Prpsed Incme Tax Act: Cntributins t registered parties and candidates (3) There may be deducted frm the tax therwise payable by a taxpayer under this Part fr a taxatin year in respect f the ttal f all amunts each f which is the eligible amunt f a mnetary cntributin that is referred t in the Canada Electins Act and that is made by the taxpayer in the year t a registered party, a registered assciatin r a candidate, as thse terms are defined in that Act, (a) when that ttal des nt exceed $400, 75% f that ttal, (b) when that ttal exceeds $400 and des nt exceed $750, $300 plus 50% f the amunt by which that ttal exceeds $400, and (c) when that ttal exceeds $750, the lesser f (i) $650, and (ii) $475 plus 33 1/3% f the amunt by which the ttal exceeds $750, Incme Tax Act: Cntributins t registered parties and candidates (3) There may be deducted frm the tax therwise payable by a taxpayer under this Part fr a taxatin year in respect f the ttal f all amunts each f which is the eligible amunt f a mnetary cntributin that is referred t in the Canada Electins Act and that is made by the taxpayer in the year t a registered party, a registered assciatin r a candidate, as thse terms are defined in that Act, (a) when that ttal des nt exceed $400, 75% f that ttal, and (b) when that ttal exceeds $400, $300 plus 50% f the amunt by which that ttal exceeds $400, if payment f each mnetary cntributin that is included in that ttal is evidenced by filing with the Minister a receipt, signed by the agent authrized under that Act t accept that mnetary cntributin, that cntains prescribed infrmatin. if payment f each mnetary cntributin that is included in that ttal is evidenced by filing with the Minister a receipt, signed by the agent authrized under that Act t accept that mnetary cntributin, that cntains prescribed infrmatin. Nte that each cntributin limit in Sectin 367 (1) in the prpsed Bill is increased by $25, effective January 1,

12 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) Appendix B: Methdlgy PBO used Statistics Canada s Scial Plicy Simulatin Database and Mdel (SPSD/M) t estimate the cst f reducing the plitical cntributin limits and the change in the federal plitical cntributin tax credit. 14 With the prpsed legislatin, the Quarterly Allwance Fund wuld be calculated as: ($0.4375) x (# f valid vtes cast in the mst recent general electin preceding the quarter) x (annual inflatin factr published in the Canada Gazette) The data surces and calculatins fr the estimatin f the Quarterly Allwance Fund are described belw: Valid vting data frm previus electins was used frm the Electins Canada website; 15 The allwances paid in 2018 and 2019 are based n the valid vtes cast in the 2015 electin, while the allwances paid in 2020 and 2021 are based n the valid vtes cast in the 2019 electin. 16 PBO prjected the valid vtes cast in the next upcming electin 17 : Calculated the rati f valid vtes fr the previus five general electins by the ppulatin in thse years, and applying the average f the ratis t the prjected ppulatin in The 2017 inflatin adjustment factr f 1.408, published in the Canada Gazette as per the requirements in the Canada Electins Act, was used as a baseline. 18 PBO used its internal prjectins f the CPI grwth rate t determine a prjected inflatin factr fr The prjected inflatin factrs and the ttal annual individual cntributin limits are presented in Table B-1 belw. 9

13 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) Table B-1 Inflatin Factr and Maximum Ttal Individual Cntributin Limits and Tax Credit Receivable Inflatin Factr fr Quarterly Allwance Fund 19 Ttal individual maximum cntributin limits Maximum federal plitical cntributin tax credit receivable $2,600 $1, $2,700 $1, $2,800 $1, $2,900 $1,550 Surces: Parliamentary Budget Officer calculatins based n data frm Public Services and Prcurement Canada, SPSD/M versin 22.3 and PBO frecasts. 10

14 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) Ntes 1. In rder t qualify, candidates fr a registered party must have, in the mst recent general electin, either received 2% f the valid vtes cast, r 5% f the number f valid vtes cast in the electral districts in which the registered party endrsed a candidate Annual limits increase by $25 each year, effective January 1. The initial limits set frth in the bill wuld increase by $25 each, as the prvisin wuld cme int frce January 1, 2018, the same day the limits are set. 3. This quarterly allwance existed since 2004, but was phased ut in Bill C-364 reintrduces it. 4. Electins Canada, Recmmendatins f the Chief Electral Officer f Canada t the Huse f Cmmns Standing Cmmittee n Prcedure and Huse Affairs Respecting Specific Issues f Plitical Financing, cument=part8&lang=e 5. Canada Electins Act, S.C. 2000, c 9, s 445(2) Assumptins used fr this calculatin can be fund in Appendix B. 7. The average vter turnut percentage f the past five electins was lwer than the vter turnut percentage f the 2015 electin, which explains the decrease in the prjected allwance in PBO culd nly identify ttal federal plitical cntributins made and claimed n individuals tax returns, rather than cntributins fr each party, candidate, r cntestant. It is pssible this ttal amunt is underestimated, since individuals may nt claim small amunts f cntributins made. 9. Calculated via SPSD/M. 10. Candidates and leadership cntestants can cntribute abve the maximum cntributin limits t their wn campaign. PBO estimates d nt accunt fr this; hwever, analysis f data frm Electins Canada shws that these amunts are nt material Fewer than 1,000 individuals are prjected t cntribute ver the prpsed $2,600 limit in Statistics Canada, SPSD/M versin Ttals may nt add up due t runding. 13. Data frm Electins Canada indicates that individual cntributins fr the electin year 2015 were significantly greater than bth the preceding and fllwing year. This suggests that PBO s estimates fr 2019 may be understated. Surce: Electins Canada, Financial Returns. 11

15 Cst Estimate fr Bill C-364: An Act t amend the Canada Electins Act and t make a cnsequential amendment t anther Act (plitical financing) Accessed January 29, Fr the calculatins in this reprt, PBO turned ff bth the cmmdity tax and pensin incme splitting simulatins. 15. Electins Canada, Past Electins. x&lang=e Accessed Nvember 20, The next electin date is currently set fr Octber 21, lec&lang=e 17. All ppulatin data used was prvided by Statistics Canada. 18. Public Services and Prcurement Canada, Canada Gazette, Vl. 151, N. 7. February 18, /html/parliament-parlement-eng.php Last updated February 18, Accessed Nvember 20, Calculated fr the ne-year perid beginning April 1 st. 12

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