December 2006 Archives

Tax Savings in 2007

Tax Savings in ’07 – Modest Gains for Individuals, Families with Young Children Win Big

Ottawa: The Canadian Taxpayers Federation (CTF) today released projected income and payroll tax changes kicking in on January 1st, 2007.

“All taxpayers will pay less tax in the New Year,” said CTF federal director John Williamson. “The new employment tax credit will increase to $1,000 for the 2007 tax year, up from $250 in 2006. This fourfold increase permits the finance minister to truthfully assert taxes are going down even though Canadians will pay more payroll taxes next year and the lowest personal income tax rate will rise a quarter-point to 15.5% from 15.25%.”

News Editors: It has been reported the value of the employment tax credit – unveiled in the 2006 budget – is $500 for the 2006 tax year. This is wrong. Please refer to the Canada Employment Credit, page 219, Annex 3 of The Budget Plan 2006. CTF calculations, which are prepared annually, include the new $1,200 (pre-tax) Universal Child Care Benefit for consistency as tax figures also incorporate the Canada Child Tax Benefit. These calculations do not measure the one-point GST reduction, the effect of pension splitting or the impact from tax credits that benefit some, but not all taxpayers.

Federal Income & Payroll Taxes 2007 vs. 2006 – Select Incomes (CTF Calculations)

See Chart 1 & 2 for calculation notes and provincial income tax amounts (web links are below).

“Without a doubt the biggest winners are families with young children. They will rocket ahead thanks mostly to the monthly $100 payment for each child under age 6,” stated Mr. Williamson.

Provincial Income Tax Changes –

Chart 1 – http://www.taxpayer.com/pdf/tax_savings_2007.pdf – details overall federal-provincial tax savings province by province for various income scenarios.

“Low-income individuals, earning less than $25,000 annually, benefit the most from Ottawa’s new employment tax credit. Also noteworthy are that the larger tax savings for individuals earning $80,000 is due to indexation and how unevenly families with similar income levels are taxed,” said Williamson. “One the provincial front, Manitoba taxpayers will realize the largest savings due to a drop in its middle income tax rate.”

Payroll Taxes Continue to Increase –

Effective January 1st, 2007, Employment Insurance (EI) premium rates will drop by seven cents to $1.80 for employees (per $100 of insurable earnings) from the current rate of $1.87. The corresponding employer rate will drop by 10 cents to $2.52 from the current rate of $2.62. However, the maximum insurable earnings will rise from $39,000 to $40,000. The previous EI threshold increase was in 1995. The seesaw EI changes represent a mere 1.3% reduction from 2006 levels.

Canada Pension Plan (CPP) premium rates (per $100 of insurable earnings) will remain unchanged at 4.95% paid by employees and 4.95% paid by employers. The threshold will increase to $43,700 in 2007 from today’s $42,100 level. See Chart 2 for 2007 and historical EI and CPP tax changes:

http://www.taxpayer.com/pdf/payroll_taxes_2007.pdf

“The net payroll tax bill on workers will increase because the EI tax reductions will be gobbled up by a higher EI threshold and rising CPP payments. Workers will pay $70 more in payroll taxes and employers $65 more,” said Williamson. “Ottawa was wrong to increase the EI threshold when the program continues to amass an annual $2-billion surplus. It is another example of giving a tax break with one hand, by lowering the EI tax rate, and taking it away with the other, by raising the threshold.”

A Tax Cut Plan for All Canadians –

The CTF proposes to increase both the basic personal and spousal exemptions to $15,000 over four years. This will save taxpayers $940 a year. In addition, the top two personal income tax rates should be reduced by 3% – phased-in over three years – from 29%-to-26% and 26%-to-23%.

“It is not sufficient for parliamentarians to only discuss cutting taxes for low- and modest-income Canadians,” concluded Williamson. “According to the OECD and even Canada’s finance department, our personal income tax burden remains the highest of the G-7 nations. This standing has not changed in almost a decade. Broadly-based tax relief in the ’07 budget is necessary to ensure all income earners benefit from lower taxes.”

John Williamson
Federal Director
Canadian Taxpayers Federation

More Tax Dollars for these Welfare Bums?

Canada’s Corporate Welfare Deadbeat: Pratt & Whitney

OTTAWA – The Canadian Taxpayers Federation (CTF) responded to yet another announcement of government handouts for Pratt & Whitney – this one for $350-million from the Technology Partnerships Canada program – by releasing Access to Information documents that show Pratt & Whitney is Ottawa’s top corporate welfare frequent flyer. The aerospace company has led the porker pack having been granted $1.5-billion in various types of assistance from Industry Canada since 1982.

The CTF will release a report, entitled On the Dole – Businesses, Lobbyists & Industry Canada’s Subsidy Programs, in January, 2007. It will chronicle Industry Canada’s subsidies to businesses from 1982 to 2005. Data from that forthcoming report include a history of handouts to Pratt & Whitney gone bad:

Pratt & Whitney has received $1.25-billion in subsidies predominantly through two of Ottawa’s most controversial and discredited corporate welfare schemes – the Defence Industry Productivity Program (DIPP) and Technology Partnerships Canada (TPC) – between April 1, 1982, and March 31, 2006. (A total of $1.496-billion has been authorized. The complete list is available here: http://www.taxpayer.com/pdf/Handouts_to_Pratt_&_Whitney.pdf)

Of the $1.25-billion doled out, Pratt & Whitney repaid just $92-million, a pathetic 7.4%.

Figures from the Industry Department show of the $691.8-million authorized through TPC alone, the aerospace giant has repaid only $21.1-million – a paltry 3.1% (as of March 2006).

In August, 2006, it was revealed the industry department turned off the TPC subsidy taps to Pratt & Whitney following a dispute over how much the federal government should reimburse the company for its research and development costs.

Pratt & Whitney is savvy when it comes to securing handouts from Ottawa. Their registered lobbyists include a former assistant deputy minister of Industry Canada John Banigan, and Conservative Party insider Yaroslav Baran.

“Given their paltry repayment record and omnipresence at the trough, giving Pratt & Whitney more of taxpayers’ money is like giving a pyromaniac a jerry can and pack of matches. And as usual it is Canadians taxpayers who will be burned,” stated CTF federal director John Williamson. “When it comes to corporate welfare it’s all about who you know in Ottawa, and Pratt & Whitney makes sure it knows everybody. It is paying off handsomely.”

“Today’s announcement shows that Pratt & Whitney is again at the forefront when it comes to handouts,” continued Mr. Williamson. “Rather than focus on subsidies and vote-buying, the Conservative government should seek to protect all taxpayers from this type of wasteful spending. Canadians taxpayers deserve better. Our forthcoming report will demand an end to paying subsidies to businesses.”

John Williamson
Federal Director
Canadian Taxpayers Federation

Jim Flaherty, Canada’s Minister of Gimmicks

The Conservative government’s annual budget update hit all the right notes. Unveiled last month by Finance Minister Jim Flaherty, it laid out a three-point plan. Government debt will be eliminated by 2021. Annual interest savings from a lower debt will be plowed back to taxpayers by cutting personal income taxes – he calls this the Tax-Back Guarantee. And the government will “maintain a tight rein on spending.”

This is all music to taxpayers’ ears. Yet none of it will happen. The minister is instead proposing a series of gimmicks.

Take the pledge to pay down “total government net debt.” To most Canadians this means one thing – paying off Ottawa’s $481.5-billion federal debt, which incidentally costs taxpayers $34-billion in annual interest costs. (That’s $93-million each day.) National debt, as it is commonly understood, is the sum of annual deficits accumulated by the federal government since Confederation.

But Mr. Flaherty isn’t proposing eliminating this debt. He will eliminate “government net debt,” an altogether different proposal.

His net debt includes federal debt plus provincial, territorial and municipal government liabilities less the accumulated assets of the giant Quebec and Canada Pension Plans (Q/CPP). By including the funds earmarked to pay future Q/CPP benefits to pensioners, Mr. Flaherty’s no “net debt” objective will easily be achieved. Ottawa will only need to reduce its debt by $3-billion a year, for a total reduction of $48-billion over the next 16 years.

Debt reduction is supported by many Canadians. It is akin to paying off the national mortgage. In fiscal 1996/97, Canada’s debt stood at $562.9-billion. The federal budget was balanced nine years ago and debt repayment has since totaled $81.4-billion, which saves billions and billions of dollars in annual interest payments. Mr. Flaherty’s scheme will pay down less debt than reductions made over the past nine years. Redefining “debt” makes his meek 16-year “net debt” plan appear a great leap forward.

Mr. Flaherty calls this fable a “bold new plan.” Liberal finance critic John McCallum accused the minister of using “an arcane statistic” to confuse people. (And he’s right.) Taxpayers call it phantom debt relief – a political gimmick.

A last point on debt: the minister’s pledge to apply every surplus dollar to bring down the debt is nothing to celebrate either. It is already federal law. The Financial Administration Act wisely requires that 100% of any surplus be directed to debt repayment.

As for Mr. Flaherty’s promises of tax relief, according to the November update, Ottawa’s surplus will total more than $50-billion over the next six years. Yet Mr. Flaherty announced that the GST will not be cut again until 2011. And his so-called Tax-Back Guarantee ties future personal income tax relief to his debt relief schedule.

Under his plan, there will be no income tax relief without significant debt interest savings. This is an excuse for Ottawa to keep taxes high. The proposal to pay off $3-billion in debt each year will save taxpayers approximately 10 bucks annually – a trivial amount.

Last is the Conservative commitment to keep spending under control, a policy already in tatters. In his update, Mr. Flaherty scolded the Liberal government for its awful spending record, “Over the past five years of the previous government, total program spending grew by an average of 8.2% each year.” He added, “This growth was neither sustainable nor desirable.”

The Conservatives will be more disciplined. Mr. Flaherty said, “The government is committed to keeping the growth of program expenses below the growth of the economy over the medium term.” In Parliament he repeated “...our new economic plan proposes to keep the growth rate of program spending on average below the rate of growth in the economy.”

And why is this important? “To the extent spending growth is kept below the growth in the economy, this will contribute to further reductions in public debt and in taxes given the commitment to dedicate interest savings to tax reductions,” said the minister. His message is clear: tax and debt reductions are conditional on spending restraint.

But the ink on the update wasn’t even dry and the Conservatives already betrayed the commitment to keep spending “below the growth of nominal GDP.” Mr. Flaherty’s May budget stated program spending will “rise 5.4% in 2006/07 ... below the growth of nominal GDP.” His update reports “nominal GDP is projected to grow 5.0% this year and 4.6% in 2007.”

So how does Mr. Flaherty explain this little ditty from the update: “Program expenses are expected to grow by 7.1% in 2006/07”? This level is much higher than nominal economic growth. Moreover, it is only a stone’s throw away from the Liberal’s 8.2% spending spree routinely disparaged by Conservatives.

Meager tax relief, Liberal spending levels and less debt repayment all dressed up as a bold new plan. Taxpayers had hoped for some straight talk from the Conservative government. Instead Minister Flaherty is selling a false bill of goods.

John Williamson
Federal Director
Canadian Taxpayers Federation

The State has no Business in the Refrigerators of the Nation

For too many politicians and bureaucrats most problems can be solved with a healthy serving of taxation and a side order of regulation. The latest? Taxing and regulating “bad foods” to tackle the obesity epidemic. Those very smart persons in government and academia conclude that if we taxed Big Macs and Eat More bars we’d all reduce our consumption of “bad foods” and fill the streets with Lance Armstrong look alikes. The concept is nothing new.

Cigarettes and alcohol have been deemed ‘politically incorrect’ for years. More recently gasoline was added to the list. Apparently, heating your home or driving your kids to school is a “SIN” so we tax it in the hope that consumption will be reduced. Is it working?

People continue to drink and smoke. And, horror of horrors, people continue to heat their homes in winter. It’s true that the choices many people make are not healthy ones. And it’s also true that they shoulder responsibility for those choices. But is arming the Nanny state with food police a good idea?

Imagine bureaucrats deciding which foods are “healthy” and which aren’t. Would a high-carb potato be subject to the tax? What about the fatty but protein-rich steak? A new skyscraper would have to be constructed in Ottawa to manage the exemptions and inclusions, while lawyers would be required to defend those decisions against food producers who think their particular product should not be subject to the tax. Government could call it the indigestion tax!

Studies done in the United States indicate a link between socioeconomic status and obesity. Basically, the less education you have and the lower your income, the more likely you are to be obese. This tax proposal only exacerbates their plight. Making poor people poorer further limits their choices. It doesn’t make them healthier.

Second, what does taxing food have to do with obesity at all? Just because someone eats a candy bar doesn’t mean they’re obese. The only point in imposing an obesity tax on a marathon runner who enjoys a Snickers bar once in a while is that it – pardon the pun – fattens government coffers. And that’s the real agenda here.

There are two alternatives to taxing food.

One rests in the demands of the market place. The fact is, even McDonald’s consumers can order a salad and low-fat yogurt. Why? Because McDonald’s understands sensible people on the go want alternatives to Big Macs or they will go somewhere else to eat. It’s the same reason car manufacturers are beginning to produce hybrids on a mass scale and why many restaurants went smoke free long before the Nanny state arrived. The market responds to consumer demand.

Finally, if Canadians paid out of their own pocket for their own health care there would be a built-in incentive to choose healthier lifestyles. Buffet-style, one-premium-fits-all style health care insulates people from the consequences of their choices. Insurance premiums are based on the relative risk an individual poses. If someone smokes, is over weight and drinks excessively, his or her health premium will rightly be higher than for someone who exercises three times a week and doesn’t smoke. Canadians face – and indeed welcome – these consequences every day when it comes to renewing their automobile and life insurance policies.

If policy makers want to tackle obesity then they should consider reforms to medicare premiums as an alternative to creating multi-billion dollar food police and bureaucracies that have more to do with stuffing government coffers than instilling personal responsibility in those who are genuinely at risk. Former Prime Minister Pierre Trudeau once quipped that the state has no business in the bedrooms of the nation. Well … it has no business in the refrigerators of the nation either.

Troy Lanigan and David MacLean, Canadian Taxpayers Federation

John Williamson
Federal Director
Canadian Taxpayers Federation

CRA News Release: Stamping of hand delivered mail at CRA Local Offices

The Canada Revenue Agency (CRA) has announced it will provide a uniform on demand date stamping service for hand-delivered correspondence in every local CRA office across Canada.

According to the CRA News Release:

"Canada's New Government is putting the taxpayer first by working with the CRA to deliver better customer service," Minister Skelton said.

In recognition of the value that some taxpayers and tax practitioners place on date stamping, the CRA will implement uniform date stamping on demand in all local offices. The service will consist of placing a stamp on envelopes received at local office counters for deposit in drop-boxes.

For more information on this CRA News Release, please see:
http://www.cra-arc.gc.ca/newsroom/releases/2006/dec/nr061207-e.html

CCPA: Tax cuts causing Canada to fall behind other OECD nations

The Canadian Centre for Policy Alternatives (CCPA) has released a study entitled The Social Benefits and Economic Costs of Taxation: A Comparison of High- and Low-Tax Countries by Neil Brooks and Thaddeus Hwong.

According to the CCPA:

This important new study compares high-tax Nordic countries and low-tax Anglo-America countries on 50 social and economic measures and finds the high-tax Nordic countries score better in 42 categories. In short, tax cuts are disastrous for the well-being of a nation's citizens.

The news release for the study appears below. The complete study can be downloaded from the CCPA web site at http://www.policyalternatives.ca

FOR IMMEDIATE RELEASE
DECEMBER 6, 2006

Taxes are good for a nation's health and well-being -- study

OTTAWA--Canada is falling behind a number of OECD nations in a wide range of social and economic areas, and a study released today by the Canadian Centre for Policy Alternatives points to tax cuts as the culprit.

The study, by Neil Brooks and Thaddeus Hwong, compares high-tax Nordic countries and low-tax Anglo-American countries on 50 social and economic measures and finds the high-tax Nordic countries score better in 42 categories.

According to the study, tax cuts are disastrous for the well-being of a nation's citizens. For example, the high-tax Nordic countries have:

- lower rates of poverty, more equal income distribution, and more economic security for their workers;
- a higher GDP per capita;
- higher rates of household saving and net national saving;
- greater innovation, including a higher percentage of GDP spent on research and development;
- a higher ranking on their growth competitiveness by the World Economic Forum;
- higher rates of secondary school and university completion; and
- less drug use, more leisure time, and higher life satisfaction.

"By cutting taxes the Conservative government is taking Canada in the wrong direction," says Brooks. "It wants to make Canada more like the United States, yet our findings show that Americans bear severe social costs for living in one of the lowest taxed countries in the world."

The U.S. falls near the bottom of the 21 industrialized countries in a strikingly large number of social indicators. It also ranks as the most dysfunctional country by a considerable margin.

In contrast, Finland ranks near the top of the industrialized world in most of the social indicators and has been named the most competitive country in the world by the World Economic Forum four years in a row.

"The tax cut lobby has it backwards," says Hwong. "Not only do government social programs create a healthier society, they also create the conditions for a vibrant and competitive economy."

Alternative Federal Budget 2007

Alternative Federal Budget 2007 Economic and Fiscal Update
Can Ottawa Afford More Conservative Government Promises?

Now available ont the Canadian Centre for Policy Alternative (CCPA) website is their "Alternative Federal Budget" and an associated news release on the report: "Conservative tax cuts quickly draining public purse: report".

"The report, by CCPA Senior Economist Ellen Russell and CCPA Research Associate Mathieu Dufour, finds that the days of large windfall surpluses are over. The spending and tax cut choices that the Conservative government made in its first budget will make double-digit budget surpluses impossible in upcoming years. "

For more information visit the CCPA website.

Prisoner Tattoo Program, A Happy Ending

Ending Prisoner Tattoo Program the Right Move
Federation Fought to End Taxpayer-funded Tattooing of Inmates

Ottawa: The Canadian Taxpayers Federation (CTF) reacted to Public Safety Minister Stockwell Day’s announcement this morning that the Correctional Service of Canada’s tattooing program for federal inmates has been terminated.

The CTF fought to end the waste of taxpayers’ money on Ottawa’s tattooing pilot program for prisoners – releasing the following “Let’s Talk Taxes” commentary on July 20, 2006: http://www.taxpayer.com/main/news.php?news_id=2337

The program cost the taxpayers of Canada $350,000 in start up costs and another $600,000 in annual operating costs at six prisons. The CTF estimates the annual cost to taxpayers to expand the program to all 58 federal correctional facilities at $5.8-million, plus $2.6-million in one-time startup costs.

“It just doesn’t make sense that people who commit crimes, in some cases violent crimes, are treated to a buffet of free tattoos when sent to prison,” says CTF federal director John Williamson. “This program is a prime example of goofy government spending and Minister Day did the right thing today by terminating it.”

“The CTF was encouraged to note the Conservative government listened by ending the prisoner tattoo program,” concluded Williamson. “We expect Finance Minister Jim Flaherty to follow Mr. Day’s initiative and reduce spending elsewhere. In last month’s fiscal update, Mr. Flaherty reported program spending is set to rise by 7.1 per cent this year, which is well above the Conservative’s own target to keep spending below the economic growth rate. Government spending is already off target and this does not bode well for broad-based income tax relief.”

John Williamson
Federal Director
Canadian Taxpayers Federation

CRA SERIOUS ABOUT COMPLIANCE

The Canada Revenue Agency (CRA) has release a news release in response to allegations that it treats some taxpayers unfairly.

"The Income Tax Act requires employers whose monthly source deduction remittances exceed $50,000 make their payments at a financial institution by the business day they are due. This is to ensure that the payments are immediately credited to the Government of Canada. Some employers have been making their remittances directly to the CRA, with the result that the deposit was often delayed until the next business day, which might occur two or even three days later. Playing the system this way, while advantageous to some employers, was unfair to all other taxpayers."

The CRA has indicated that it has clearly advised nearly 57,000 large employers of the penalty where large employers continue to make late remittances. The penalty represents 10 per cent of the amount of the payment.

"Suggesting that such penalties are unfair is in fact suggesting that the CRA not apply the provisions of the Income Tax Act. This would have the effect of giving a small number of businesses what amounts to unfair financial advantages."

The news release continues that the CRA remains committed to equal treatment of all taxpayers and will impose penalties where warranted.

For more information on this news release, visit the CRA website at: http://www.cra-arc.gc.ca/newsroom/releases/2006/nov/nr061124-e.html