March 2006 Archives

Who Benefits From the Conservative Tax Cut Promises?

Today the Canadian Centre for Policy Alternatives (CCPA) released a new analysis finding that high-income families will receive a disproportionate share of the benefits from the Conservatives' tax-cut promises.

The report, Standing Up For Which Families? Who Benefits From the Conservative Tax Cut Promises, by CCPA Research Associate Sheila Block and CCPA Senior Research Economist Ellen Russell, is available through the CCPA website. A news release summarizing the report's key findings is also available on the CCPA website: http://www.policyalternatives.ca

From the CCPA news release:

"According to Standing Up For Which Families? Who Benefits From the Conservative Tax Cut Promises, by CCPA Research Associate Sheila Block and CCPA Senior Research Economist Ellen Russell, the 5.4% of families earning over $150,000 a year will receive 27.9% of the benefits from the Conservatives' tax cuts modelled in the report, an average of over $2,010.

Almost half of Canadian families (48.6%) earn less than $40,000, yet they will receive only 20.3% of the benefits of the Conservative tax cuts, an average of just over $163."

The CCPA study concludes with a proposed redesigned tax package that demonstrates how the Conservatives could more effectively and efficiently lower taxes for low- and middle-income families.

For more information, see:
http://www.policyalternatives.ca

"Knee in the package"

On the lighter side of taxes this tax season, if you haven't seen "Knee in the Package", a spoof ad by Rick Mercer which parodies the "Hand in My Pocket" ad, get yourself to the Mercer Report on the CBC website:
http://www.cbc.ca/mercerreport/

The spoof features such lines as "Tax evasion is illegal so just get it over with and you might feel normal again by July" and "the best 60% of your money you'll ever spend". Well worth the download! Two tax forms up!

CRA tax tip: paying taxes via your bank

The Canada Revenue Agency has issued a tax tip to Canadians reminding them that they can pay taxes through most Canadian financial institutions:

"You can save time by paying your personal and/or business income tax through your financial institution's telephone and Internet banking services. Depending on the institution you deal with, you may even be able to schedule post-dated payments.

If this is convenient, you may also want to check with your financial institution if you can file your GST/HST return or remit any balance owing through the Canada Revenue Agency's (CRA) GST/HST-EDI service."

For more information on this tax tip, see the CRA website at:
http://www.cra-arc.gc.ca/newsroom/taxtips/2006/tt060322-e.html

Pain at the Pumps: Call Stephen Harper

Ever feel like placing a 9-1-1 call when you pull up to the pumps? Gasoline prices are once again over 90 cents per litre, and have surpassed $1 per litre in parts of the country.

The pump price motorists pay can be broken down into four components: crude oil costs, refining costs, retailer's profit margin and gas taxes. Depending on the province, gas taxes represent between 30% and 43% of the pump price. On average, taxes account for about 38% of the price.

The original argument for imposing higher gasoline taxes in the 1970s was to curb consumption. But consumption has chugged along and so has governments’ tax take. Between 1985 and 2003, gasoline sales steadily increased at an average rate of just over one per cent per year. According to Statistics Canada, retail gasoline sales in 1985 were just over 32-billion litres and just over 40-billion litres in 2004.

In 2004, the federal government collected $4.25-billion in direct federal gasoline taxes, an 18% increase over what was collected ten years earlier. One explanation for the increase is the steady increase in gasoline tax rates. The federal gasoline tax rate increased 567% between 1985 and 1995 – from 1.5 cents per litre to 10 cents per litre.

As a deficit reduction measure in 1995, Ottawa increased the federal gasoline tax from 8.5 to 10 cents per litre. The deficit was vanquished eight years ago, but the tax remains and the federal government’s gouging at the pumps continues even with multi-year, multi-billion dollar surpluses. With crude prices and consumption predicted to climb, it is past time the federal government gave motorists a break at the pump. Ottawa should eliminate the 1.5 cent deficit reduction tax.

Another contributor to growing federal gas tax revenue is the 7% GST and 15% HST – applied in New Brunswick, Nova Scotia, and Newfoundland & Labrador. The GST (and HST) is charged on the full pump price, gasoline taxes included. It is a tax paid on other taxes. As pump prices climb, Ottawa rakes in more GST revenues. Between 1996 and 2004, GST revenues from gasoline sales increased from $909-million to $1.2-billion – a 32% increase! At current price levels, the federal treasury will likely collect another $175-million — bringing total annual GST revenue from gas alone to over $1.35-billion.

The insidious GST/HST double taxation must be repealed. Prior to the last campaign – when gas prices last exceeded $1 a litre – then-Opposition leader Stephen Harper toured southwestern Ontario in a minivan to highlight his commitment to reduce gas taxes and give motorists a break. The topic was so high on his party’s agenda last September that Conservative MPs asked five questions in Question Period on the issue on the first day of Parliament’s fall session. “Rather than continue to rake in record high revenue from record-high oil prices, will the government simply cut gas taxes for consumers,” Mr. Harper thundered in the House of Commons that day.

With Mr. Harper now in the driver’s seat taxpayers await the ’06 budget with some measure of hope. The Conservative Party repeatedly said – in opposition – it would stop Ottawa from applying the GST on the federal and provincial levies. In addition it would implement a convoluted process to bring down gas taxes by not charging the GST if and when gas prices exceed a certain price point. In the 2004 election, the threshold was set at 85 cents a litre, but last year the Conservatives said it could be lower still. Rather than create unnecessary work for bureaucrats and additional red tape for retailers, the new government should simply cut the federal levy to 8.5 cents and be done with it.

Although supply and demand will ultimately set the price at the pump, Ottawa can make the pain a little less intense. If motorists are incensed, they should ask what the new prime minister is going to do to help them.

Tanis Fiss & John Williamson, Canadian Taxpayers Federation

John Williamson
Federal Director
Canadian Taxpayers Federation

Tax Relief “Anti-Growth” – I Think Not

On Wednesday, Liberal finance critic John McCallum penned a spirited opinion-editorial in the National Post against reducing the GST. The former bank economist called on the Conservative government to renege on its GST pledge and break faith with voters, just like the Liberals did after promising to scrap the tax altogether to win power in 1993. His argument cries out for debunking.

Mr. McCallum writes that cutting the GST is "anti-growth." This is absurd, as is his professed belief that "Canada's economists" all agree with him.

Very few economists share the opinion that reducing a consumption tax is anti-growth. Broadly-based tax reductions – of any kind – leave more money in the pockets of consumers. As such, a cut to the GST would act as an economic stimulant, not a depressant.

Instead of cutting the GST, Mr. McCallum prefers the previous Liberal government's tax proposal to cut the lowest personal income tax rate from 16 per cent to 15 per cent. This tax rate applies only to the first $36,400 of income. The other rates of 22 per cent, 26 per cent and 29 per cent remain unchanged. In addition, there is a small increase to the basic personal exemption, which is the amount an individual earns before paying federal income tax .

But these changes translate into savings of no more than $360 for Canadian taxpayers in 2006. Moreover, because this relief is aimed at low-income earners, it will not significantly boost Canada's productivity by generating more investment.

It would be an altogether different story if Mr. McCallum had championed a cut to marginal income tax rates – the high taxes on middle and top income earners. Those are the pro-growth tax cuts necessary to improve productivity and economic performance.

Mr. McCallum is hoping to convince Canadians his party's tax plan would induce the same economic benefits that result from lowering top marginal taxes. It would not. The Liberal income tax cuts are no more – or less – productivity-enhancing than the Conservative GST cut.

In truth, neither of the tax proposals coming from the two major parties would do much to improve Canada's global competitive position. Yet cutting the GST is still a welcome measure, for it will leave approximately $4.5-billion a year in taxpayer's pockets and help drive growth. That doesn’t mean more cannot be done.

Finance Minister Jim Flaherty understands this well. So should federal Liberals, who implemented a five-year tax reduction plan that began in 2000 and reduced income taxes on low-, middle- and upper-income Canadians. The result was stronger growth and lower unemployment.

When Mr. Flaherty delivers the Conservative government's first budget, he must include the promised GST reduction. He should also bring down marginal income taxes. Both measures will ultimately improve the living standards of Canadian families.

John Williamson
Federal Director
Canadian Taxpayers Federation

CRA Tax tip: For better or worse

The following tax tip is now available on the CRA Web site:

"If your marital status changed during the 2005 tax year, the calculation of benefits and credits paid by the Canada Revenue Agency (CRA) could be affected. You should notify the CRA of the change, in writing, as soon as possible after it takes place, and also update your marital status on your 2005 tax return. In some situations, you may be eligible for additional Canada Child Tax Benefit (CCTB) and/or goods and services tax/harmonized sales tax (GST/HST) credit payments. Notifying the CRA of this change also ensures that you are not subject to CCTB or GST/HST credit overpayments, and that your benefit and credit entitlements are correct."

For more information on this tax tip visit the CRA web site at:
http://www.cra-arc.gc.ca/newsroom/taxtips/2006/tt060314-e.html

CHANGES TO BC FORMS

The Income Taxation Branch of the Government of British Columbia has provided an information update indicating that two fillable forms are now available on their web site:
- FIN 27, Waiver of the Assessment Period and
- FIN 525, Notice of Revocation of Waiver

For more information see the BC Income Taxation Branch web site at:
http://www.rev.gov.bc.ca/itb/whatsnew.htm

CRA TAX TIP: REGISTER FOR AN EPASS TODAY!

The Canada Revenue Agency has issued the following tax tip... Avoid a delay - register for an epass today!

"By registering early for an epass, you will be able to access your personal tax and benefit information online through My Account for individuals without any waiting. The epass registration process is done in two steps: select a User ID and password and answer three questions. You will be asked to provide some personal information to the Canada Revenue Agency (CRA) to confirm your identity and you will then receive a mailing of a CRA activation code, which will take approximately five business days to receive (15 days if outside Canada or the U.S.). You will then be able to access your personal information within My Account by simply logging in, using your epass User ID and password."

For more information on this tax tip, visit the CRA web site at:
http://www.cra-arc.gc.ca/newsroom/taxtips/2006/tt060309-e.html