http://www.theglobeandmail.com/servlet/story/RTGAM.20071030.wflahertyupdate1030/BNStory/National/home#
OTTAWA — The Conservative government, apparently swimming in more cash than even the most optimistic economist had predicted, will fulfill a campaign promise to cut the GST and introduce income tax cuts that will be felt when Canadians file their taxes for the current year.
The multi-billion dollar package of tax relief announced Tuesday by Finance Minister Jim Flaherty is intended to appeal to voters as Parliament prepares for a potential spring election. Even after the tax cuts, which will amount to more than $10-billion in the current fiscal year, there will be a projected surplus of $11.6-billion.
“We haven't seen taxes this low since Lester B. Pearson was prime minister,” Mr. Flaherty bragged in the opening lines of his mid-term economic statement.
“Canada has emerged as a shining example in an economic universe of rapid change and uncertainty. We are leading the way with our tax cuts, our debt reduction and our focused and responsible spending.”
Among the highlights:
• The Goods and Services Tax will be cut an additional 1 per cent as of Jan. 1, leaving the federal consumption tax at 5 per cent. The GST cut will cost the government about $5.5-billion. But the GST credit for low-income Canadians will remain at its current level, said Mr. Flaherty
• The basic personal income-tax exemption will increase to $9,600 from the current $8,929, retroactive to 2007. And it will increase again to $10,100 as of Jan. 1, 2009.
• The government is reducing the lowest personal income-tax rate to 15 per cent from 15.5 per cent, a retroactive change that will also be felt at tax-time this coming year.
• There will be a cut to corporate taxes of 1 per cent in 2008 with on-going reductions that will see business taxes fall down to 15 per cent by 2012 from 22 per cent today. That will leave Canada with one of the lowest corporate tax rates among the industrialized economies.
• The government will still have $10-billion in surplus cash to apply to the national debt.
Mr. Flaherty said his new personal income-tax measures will remove an additional 380,000 low-income Canadians from the tax rolls altogether.
“By reducing the GST, our government has fulfilled a key campaign commitment and kept its word to Canadians,” said Mr. Flaherty.
Bloc Québécois Leader Gilles Duceppe was quick to reject the mini budget, saying his MPs will vote against it Wednesday afternoon. NDP Leader Jack Layton also said he couldn't support Mr. Flaherty's update because it failed to take the balanced approach of targeted tax relief.
That left the ball firmly in the court of Liberal Leader Stéphane Dion, who put questions of a snap election to rest late Tuesday.
“We will choose our time when we decide to put this government down,” he said. “It will not be tomorrow.”
The mini budget was intended as a poison pill for Mr. Dion, who objects to the GST cut on grounds that it is poor fiscal policy, but has said previously that he won't bring down the government over it. The Liberals brought in their own income-tax cuts in the dying days of the Paul Martin government but those were reduced when the Conservatives came to office.
“We are back where we were in 2005 about the income tax. The government increased your income tax,” said Mr. Dion, adding that he supports the corporate tax cut.
But he was unequivocal about the GST.
“It's a mistake. It will not help the productivity of our country, it will not help our families as it should. It's a big mistake,” Mr. Dion said.
During the 2006 election campaign, Stephen Harper made a two percentage point cut to the-then seven per cent GST the top item of his five-point agenda. The rate was dropped to six per cent during the Conservative's first budget. The second instalment was promised before 2011.
Mr. Dion is not alone in his objection to the GST cut. A group of 20 economists surveyed last week by The Globe and Mail were unanimous in their rejection of the Conservative plan as a tax-cutting priority for Canada.
All 20 economists said other tax cuts would be better for the country.
“It doesn't do anything to improve the performance of the economy,” Toronto Dominion chief economist Don Drummond said earlier Tuesday on CBC.
“The only way I can benefit from a cut (to) the GST is if I consume more. But we're already consuming an awful lot. We have a very low savings rate. On the other hand, if we look at our personal income tax system, for a lot of families, they get to keep less than half of the last dollar that they earn.”
Mr. Flaherty's economic statement comes on the eve of Halloween and the one-year anniversary of the government's controversial income trust tax, when the Tories broke an election pledge to protect trusts. He made the statement at the National Press Theatre because the NDP blocked unanimous consent to allow the update to be delivered in the Commons.
With a report by Canadian Press