Budget Archives

Budget 2010: Leading the Way on Jobs and Growth

The Government of Canada released its Budget 2010 on March 4, 2010. Following is an excerpt from the Budget in Brief highlights.

For the full text of the budget, see the Finance Canada web site at:
http://www.budget.gc.ca/2010/

Budget in Brief -- Highlights

Canada has returned to economic growth following the deepest global economic recession since the 1930s. The global recovery, however, remains fragile.

Budget 2010 aims to contribute to this recovery and sustain Canada's economic advantage now and for the future. The budget plan has three broad aims.

First, it confirms $19 billion in new federal stimulus under Year 2 of Canada's Economic Action Plan to create and maintain jobs, complemented by $6 billion from provinces, territories, municipalities and other partners.

Second, it invests in a limited number of new, targeted initiatives to build jobs and growth for the economy of tomorrow, strengthen Canadian innovation, and make Canada a destination of choice for new business investment.

Third, Budget 2010 charts a course to bring Canada's finances back to balance over the medium term and well before any other Group of Seven (G7) country.

By making timely investments that fit firmly within the Government's long-term economic vision for Canada, and thanks to the resilience and ingenuity of Canadians, our country will emerge from the recession with a stronger economic advantage than before.

The Canadian brand will be based on competitive taxes, renewed infrastructure and skills, a strong head start in clean energy, a tariff advantage, less red tape, and a more prominent voice as a global financial sector leader.

Together, we will create a stronger Canada and a stronger economy, now and for the future.

Alternate Federal Budget

The Canadian Centre for Policy Alternatives (CCPA) has released Leadership for Tough Times: The Alternative Federal Budget Fiscal Stimulus Plan. The press release and link to the alternative budget are available on the CCPA web site at:
http://www.policyalternatives.ca/reports/2009/01/reportsstudies2065/?r_ID=71466

The CCPA routinely issues its own version of the federal budget as a means of offering alternative approaches to the ruling party's approach. According to the CCPA's alternative budget, this "one-year package would create 407,000 jobs, boost the economy by 3%, and help protect Canadians from the worst of a recession."

In line with recommendations by the IMF and OECD, the CCPA Plan would inject $32.9 billion (or 2.1% of GDP) into Canada’s economy. Designed "to protect Canadians who experience loss of income, as well as strengthen and build hard and soft infrastructure to address the challenges of climate change, income inequality, and aging populations" you be the judge on how it compares to the Conservative's federal budget on the Finance web site: http://www.budget.gc.ca.

Harper’s Challenge

We forget the tremendous progress Canada has made to its economic standing over the last 20 years. We were a high-taxed, heavily regulated nation and government had become too large, too bureaucratic and too wasteful. Our turnabout has been more dramatic than that of any of the G7 advanced industrial nations.

Canada began the 1970s with total government spending accounting for 36% of the country's economic output. The United States stood at 32.3% and the G7 average was 32.6%. Yet, the ravenous appetite of the state grew and grew, taxes increased and deficit spending became routine. By 1992, government activity in the U.S. accounted for 38.5% of all economic activity and 42% in the G7, increases of 19% and 29% respectively.

The growth of government in Canada meanwhile was even more stunning. Total government outlays at home devoured an astounding 53.3% of GDP. The state had grown by 48% and, rather than playing a helpful role in the economy, had instead become the problem. In 1992, Ottawa's deficit was $39-billion and one third of all federal tax revenues were spent on interest payments. The Wall Street Journal subsequently declared Canada an "honorary member of the Third World in the unmanageability of its debt problem" in an editorial entitled "Bankrupt Canada?"

Canada got serious about cutting government spending, selling Crown assets, eliminating deficits, limiting government involvement in the economy and eventually lowering taxes. By 2006, government's take of the economy was 39.5%, a decrease of 13.8 percentage points, and is now less than the G7 average of 40.4%. It is also only 3.1 percentage points higher than the size of the U.S. government relative to its economy, which today stands at 36.4%. Back in 1992, government in Canada was 14.8 percentage points larger than government in the U.S. (The spread between all government revenues remains higher at 6.2 percentage points because Canada is running surpluses and the U.S. funds spending with massive budget deficits.)

Government is still too big and consumes too many tax dollars. But the hard work is paying dividends as government has improved its balance sheet and loosened its grip on taxpayers, businesses and the economy. Today, unemployment is low, inflation contained, the dollar strong, and homeownership high. It has been an era of greater prosperity and opportunity.

At a campaign rally this week Prime Minister Stephen Harper told Canadians our country will remain a bastion of economy strength. This is true, provided Ottawa does its part and does not again muck-up the economy by growing and spending excessively. So where might be Canada going?

Taxpayers are already aware of the Liberal's proposal to lower income taxes on business and personal income but impose a carbon tax on traditional energy sources. Opposition leader Stéphane Dion calls his plan revenue neutral because "every dollar raised by the carbon tax will be returned to Canadians in tax cuts." But this is not accurate. A revenue-neutral tax plan matches a tax hike with a dollar for dollar reduction in other tax rates.

Mr. Dion will instead levy a $15-billion carbon tax on traditional energy sources. The revenue will be used to lower personal and business income taxes by $9.5-billion. Low-income families will receive payments totaling $4.5-billion and the remaining $1-billion spent on research and development. In other words, for every $2 in income tax relief there will be $3 in additional taxes and another $1 in spending. This plan will grow the size of government, drain more resources from the economy, and make middle-class families poorer.

So what about the governing party? Unlike the Grits, they have yet to release a platform. The Conservatives' first campaign promise was a small, but agreeable $600-million reduction to the federal tax on diesel. Whatever else they offer on the campaign trail many taxpayers will evaluate the Conservatives on their tax and spending record. That review is decisively mixed.

First the good news: taxes. The Conservative government got off to a rough start in 2006 by providing tax relief with a one point GST reduction but took much of it away by raising personal income taxes. A series of micro tax cuts in the 2006 and 2007 budgets – such as tax credits for regular transit riders or for tradesmen that purchased tools – benefited some, but certainly not all taxpayers. Then came the decision in October 2006 to reverse its guarantee not to tax income trusts. Although it was the correct policy prescription, it nonetheless hurt the government's standing among investors – anger that was somewhat dampened by allowing seniors to split pension income for tax purposes.

Finance Minister Jim Flaherty finally found the right track in the fall of 2007. His mini-budget eschewed boutique tax cuts and delivered significant broad-based tax relief. The GST was reduced along with business and personal income taxes.

Each one-point reduction leaves $6-billion in the hands of consumers. The Tories have chopped the hated tax by two points and transferred $12-billion a year to consumers, fulfilling a marquee campaign promise. The minister also reversed his income tax increase of 2006 by lowering the first tax bracket back to 15%. This was an acknowledgement from Mr. Flaherty that it was a mistake to raise this tax in the first place. The government reserved his boldest policy with a 32% cut to the corporate tax. The rate will tumble to 15% in 2012 down from 22.12% in 2007. The reduction will help Canada's competitive position and help ensure more good jobs are created here.

Finally, the 2008 budget included a novel tax-free savings plan. Beginning this January Canadians will be able to invest up to $5,000 of after-tax income each year. Future investment gains will not be subject to tax nor will earnings trigger clawbacks on government entitlement programs that are income-tested. This new tax-free savings account is pro-growth policy that will encourage Canadians to save, rewarding individuals and benefiting the entire economy.

Government spending, however, is another story. Voters were initially assured a Conservative government would be fiscally responsible. They have instead been reckless by embarking on a spending binge that hamstrings their ability to lower personal income taxes and reduce debt in the future. They have even managed to best Liberal Paul Martin's spending levels.

While in office, Mr. Martin grew Ottawa by 14% over two years. The first two Conservative budgets increased the size of the federal government by 14.8%. This makes the Conservatives even bigger spenders. While the 2008 budget promised to moderate spending growth to 3.4% this fiscal year, it seems bribing voters with their own money remains a higher calling. The department of finance reported last month that expenditure receipts swelled an eye-popping 8.4% in the first three months of the year. This is two-and-a-half times the 2008 budget plan.

Although they continue to claim they will hit their 3.4% expenditure target, the Conservatives have proven throughout their term in office that they cannot control spending. Consider the government's first budget. It called for Ottawa's expenditures to grow by 5.4% in fiscal 2006/07. At the end of that year government receipts had jumped by 7.5%. The 2007 budget plan announced an additional 5.6% spending hike. The real amount in 2007/08 was a 6.9% increase. So much for responsible budgeting.

Mr. Harper is likely going to win this election on the weakness of the opposition. Yet, the governing party is squandering an opportunity to further advance our position in the world. A lower taxed, better governed country than other G7 nations, including the U.S., would be a magnet for investment and skilled workers. For that to happen Ottawa will need to control expenditures and cut personal income taxes, which remain the highest of all G7 nations.

It remains to be seen whether Mr. Harper will be a transformative leader that keeps Canada out in front on the road to growth and prosperity or if he instead reverses course and ushers in a new era of big government. Canada's standing could easily fall.

If this seems preposterous consider how George W. Bush grew spending at twice the growth rate of his predecessor, blew the surplus and ballooned Washington's budget deficit. U.S. government spending has already increased by 59% this decade. That is an annual average of 8.4%. Over the same period Ottawa increased its expenditures by 54%. That is a yearly growth rate of 7.7%. If Mr. Bush’s fiscal diet consists of a supersized Big Mac, fries and a Coke, Canada is similarly gorging itself only downing it with a diet Coke. If Prime Minister Harper is to preserve our country’s fiscal advantage over G7 nations, he’ll need to trim spending the day after the election is over. Based on his record today, the likelihood of that happening is not promising.

John Williamson is federal director of the Canadian Taxpayers Federation. He will be leaving the watchdog organization today to undertake graduate studies at the London School of Economics.

John Williamson
Federal Director
Canadian Taxpayers Federation

Federal spending ballooning to unsustainable levels

Conservative government to taxpayers: We’ve given up trying to control spending

OTTAWA: The Canadian Taxpayers Federation (CTF) reacted today to the announcement that the federal government’s spending is ballooning to unsustainable levels. The finance department reported today in their June Fiscal Monitor that Ottawa’s expenditures grew by 11.1 per cent in June, and program spending swelled by an astounding 8.4 per cent in the first three months of the fiscal year. This increase is two-and-a-half times the 2008 budget’s spending estimate, which called for a 3.4 per cent boost to spending.

“Many Canadians were encouraged by the Conservative's apparent new restraint shown in their third budget that limited spending growth to 3.4 per cent this fiscal year. Well, so much for that. In the first three months, spending is instead up two-and-a-half times what these so-called fiscally responsible Conservatives in Ottawa budgeted it to be," said CTF federal director John Williamson. “The Conservatives continue to claim they will still hit 3.4 per cent in spending growth for the year, but they’ve proven throughout their term in office that they can’t stop themselves from spending.”

The Conservative government’s first budget called for Ottawa’s expenditures to grow by 5.4 per cent in fiscal 2006/07. At the end of that year government receipts had jumped by 7.5 per cent. The 2007 budget plan announced an additional 5.6 per cent spending hike. The real amount in 2007/08 was a 6.9 per cent increase.

Canadians were initially assured a Conservative government would be more disciplined. On November 23, 2006, Finance Minister Jim Flaherty scolded the previous Liberal government for spending tax dollars recklessly, telling Canadians, “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? The minister provided the answer when he said, “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.”

Williamson concluded, “The message is clear. Tax and debt reductions are conditional on spending restraint. The Conservatives have gone on a spending binge that hamstrings their ability to lower personal income taxes and reduce debt.”

Please note that after six good years with the Canadian Taxpayers Federation, I will be resigning as federal director on Sept. 12, 2008, to undertake graduate studies in economics.

John Williamson
Federal Director
Canadian Taxpayers Federation

Jim Prentice, Canada’s Presumptive Finance Minister?

It is no secret in Ottawa that Industry Minister Jim Prentice wants to be Canada’s finance minister. Before the last Cabinet shuffle there was a quiet but steady effort to publicly highlight Mr. Prentice’s managerial talents and disparage Jim Flaherty’s reprimanding of high-taxed Ontario to change policies or risk becoming a have-not province. If Minister Prentice had his way he’d be running finance and Mr. Flaherty would be punted to a second-tier ministry, like industry. It didn’t matter that many mainstream economists agreed with Mr. Flaherty, Mr. Prentice was offering himself as a kindler, gentler Conservative.

Last week, the industry minister took another run at Mr. Flaherty by wading into budget territory. He told reporters the federal government has not determined how to allocate proceeds from the recent auction of wireless licences that resulted in an unexpected $4.25-billion windfall. Mr. Prentice said the cash might go to tax cuts, debt repayment or even spending programs. If Mr. Prentice is determined to audition for the finance minister’s job he might want to first reflect on the state of Ottawa’s finances. Because there should be no confusion in Conservative ranks about what to do with the revenue.

The finance department reported last Friday that Ottawa posted a deficit of $517-million in the first two months of the 2008 fiscal year. This news is worrisome even after a decade of Ottawa lowballing its surplus projections. It was no surprise that tax revenues dropped by 4.1% since the Conservatives cut the GST another point and lowered the tax rate on businesses. If Ottawa’s financial position is worsening it is the result of poor management and over-spending, not modest tax relief. The 2008 budget claimed Ottawa would limit spending growth to 3.4% this year. Yet, expenditures in April and May grew by 7%. If this continues, Ottawa will be on track to overshoot its budget target by an astounding 100%.

Do Mr. Prentice and his colleagues believe the federal government should increase spending further this year? And how important is reducing the federal government’s monster debt? Since 1997, the debt has been cut by $106-billion. That’s a good start. But each year $34-billion is still spent on interest charges to service Ottawa’s outstanding $457-billlion liability. That amounts to $93-million each day. There is clearly more work to do.

It is folly to suggest a one-time revenue gain – such as the $4.25-billion generated by the wireless auction – be used to increase spending. Whatever new program might be created will live long after the cash raised from the auction is spent. As Milton Friedman said, “Nothing is so permanent as a temporary government program.”

Whenever a government sells an asset – in this case wireless spectrum rights – the additional income should be used to reduce the country’s debt liability. Ottawa has the option of allocating the auction revenue at once or spreading it over a decade. The latter move would boost revenue by $425-million a year, however leaving this money on the table increases the likelihood that some of it will be spent instead of going against the debt.

Applying $4.25-billion to the debt will reduce interest payments by approximately $225-million every year. Under the Conservative government’s new tax-back guarantee law, all debt-interest savings are used to reduce personal income taxes. This is another good reason why the auction revenue should be used to retire the debt now. Debt relief today will result in lower taxes tomorrow.

Minister Prentice deserves tomatoes from taxpayers. He opened a discussion on increased spending where none is necessary and offered more evidence the federal government doesn’t tax to collect the revenue it needs but that politicians always find ways to spend whatever money is collected. Taxpayers can expect spending to spike unless the real Finance Minister, Jim Flaherty, is ready to overrule his Cabinet colleague, reduce debt and keep a lid on spending. If he does not, it won’t matter much to taxpayers which Jim is the finance minister after the next shuffle.

John Williamson is federal director of the Canadian Taxpayers Federation

END

Please note that after six good years with the Canadian Taxpayers Federation, I will be resigning as federal director on Sept. 12, 2008, to undertake graduate studies in economics.

John Williamson
Federal Director
Canadian Taxpayers Federation

Tax-Free Savings Account

For information on the newly announced Tax-Free Savings Account (TFSA) in the Government of Canada Federal Budget 2008, please see our information page on the Tax Free Savings Account.

The 2008 federal budget announced the introduction of a Tax-Free Savings Account (TFSA). According to the Convervative government, it is “the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP)”.

The TFSA is similar to an RRSP. It is intended to help Canadians save money. The contributions you make to the TFSA are made with after-tax dollars but withdrawals are tax-free. So whether saving for a new car or a new house, tax-free savings may help you get there.

A New Tax Savings Plan & Modest Spending Growth

Program spending budgeted to rise 3.4% in 2008/09, but hold the applause – spending has already increased by 14.8% under the Conservatives.

Gone is the promise to pay down debt by $3-billion a year.

OTTAWA: The Canadian Taxpayers Federation (CTF) reacts to the 2008/09 federal budget, which was tabled in the House of Commons by Finance Minister Jim Flaherty this afternoon.

The Tax-Free Savings Account – A Pro-Growth Tax Plan:

The Conservative government will allow Canadians to invest after-tax dollars and any investment gains from interest, dividends and capital gains will not be subject to tax. Moreover, savings will not trigger clawbacks on government entitlement programs that are income-tested, such as pension allowances and child tax benefits. Starting in 2009, Canadians will be permitted to contribute up to $5,000 a year to this new savings vehicle.

“The new tax-free savings account is a pro-growth policy that will encourage Canadians to save, reward individuals and benefit the economy,” said CTF federal director John Williamson. “This is an excellent policy proposal. Canada needs to reward people that save because their investments fuel economic growth and job creation. The big criticism of the GST cut was that it did little to encourage savings. Mr. Flaherty responded to this concern today by proposing a plan that will not punish people that save.”

Finance Minister Flaherty Hasn’t Controlled Spending So Far. Will He Tomorrow?

The budget proposes that program spending will increase to $208.1-billion in the next fiscal year, which is a modest 3.4 per cent rise. Unfortunately, the Conservatives have failed to control spending during their first two years in office. When the Liberals left office total program spending stood at $175-billion (2005/06 fiscal year). In fiscal 2007/08, the current year ending on March 31, the federal government’s annual outlays will – for the first time – break the 200-billion-dollar mark.

The Conservative government’s first budget called for Ottawa’s expenditures to grow by 5.4 per cent in fiscal 2006. Yet, at the end of that year government receipts had instead ballooned an astounding 7.5 per cent. The 2007 budget plan announced an additional 5.6 per cent spending hike. The real amount will be 6.85 per cent.

“Under Mr. Flaherty, the size of the federal government has grown by an astounding 14.8 per cent. How is this fiscally conservative or even ‘responsible,’” Williamson asked rhetorically. “As prime minister, Paul Martin grew the federal government by 14 per cent over two years. Amazingly, the Conservatives have bested Liberal spending. This is a spend-thrift government.”

“The government’s overall expenditure level is disappointing. Spending growth has repeatedly exceeded the minister’s own target, which is the economic growth rate. As a result, Canada will pay down less debt in the future,” said Williamson.

… Less Debt Repayment:

Minister Flaherty will reduce Canada’s $467.3-billion debt by $10.2-billion this fiscal year, which ends on March 31. The government plans to reduce the federal debt by only $2.3-billion next year (fiscal 2008/09) and a trivial $1.3-billion the following year (2009/10). Up until today, Mr. Flaherty had pledged to reduce debt by at least $3-billion each and every year.

“Ottawa needs a more aggressive debt reduction schedule. The Conservatives should not be downplaying the importance of paying off Canada’s debt,” said Williamson. “Debt servicing will chew up $31.5-billion next year, which amounts to $86-million each day. Ottawa should set yearly debt reduction targets, as was done with the deficit, and make those targets the law.”

A Little More Good News – Managing the Employment Insurance (EI) Surplus:

The 2008 budget will establish a Crown corporation to manage the EI fund. Future EI surpluses will be invested until needed for EI payments. At the same time, a new rate-setting mechanism will limit the surplus to $2-billion.

“Ottawa has been using the EI surplus as a cash cow and maintaining higher EI tax rates on workers than necessary. That’s an unnecessary tax on jobs,” noted Williamson. “It is hoped this new agency will reduce the unnecessarily large tax burden and large surpluses. It is unconscionable that Ottawa has accumulated massive EI surplus, tossed it all into general revenue and spent it. EI taxes should fund EI payments, not government largesse.”

John Williamson
Federal Director
Canadian Taxpayers Federation

Jim Flaherty’s Budget Test

Jim Flaherty has done a good job downplaying expectations in advance of the federal budget, which will be tabled in Parliament on February 26th. The finance minister has said there will be no new expenditures nor will he deliver meaningful personal income tax relief. This might be acceptable so long as he delivers on both sides of the ledger.

Suppose Canadians give Mr. Flaherty the benefit of the doubt and accept that his hands are tied. That the economic downturn in the United States will reduce Ottawa’s tax base and the mighty surplus will evaporate. And perhaps many will agree a minority government makes it impossible for the Conservatives to cut government fat and eliminate waste. Maybe a status quo budget is sufficient.

Certainly, taxpayers can take some solace in recent tax cuts. The federal government rolled out a $60-billion package of broad-based tax cuts in October. It delivered substantial business tax relief, cut the GST to 5% and reversed the personal income tax rate increase Mr. Flaherty enacted in his first budget.

BUT … if Mr. Flaherty’s pledge to be fiscally “responsible” is to mean anything he must match his tax relief freeze with a corresponding spending freeze.

Increasing spending while shunning tax cuts will mean the Conservative government has put the interests of the bureaucracy ahead of ordinary taxpayers. And if the size of the federal government expands, Canadians are unlikely to buy the government line that taxpayers must wait for income tax relief.

Voters are hoping the finance minister finally follows through on his budget rhetoric. From the beginning of the Conservative government’s mandate Mr. Flaherty has vowed to control expenditures and spend responsibly. Taxpayers are still waiting.

When the Liberals left office total program spending stood at $175-billion (2005/06 fiscal year). The Conservative government’s first budget called for Ottawa’s spending to grow by 5.4% in fiscal 2006. Yet, at the end of that year government spending had instead ballooned an astounding 7.5%.

The 2007 budget plan announced an additional 5.6% spending hike. Once again spending has continued to creep upward throughout the year. Last month, the department of finance revealed expenditures had increased by 6.7% in the first eight months of the fiscal year (April to November). What fuelled the increase? The department says higher transfer payments, Crown corporation expenses, and operating expenses of departments and agencies. Translation: spending is up everywhere.

An example of lazy management is Ottawa’s recent $1-billion plan to retrain laid-off workers and fund community infrastructure projects. (More federal bocce ball courts and canoe museums anyone?) Rather than reallocate from non-priority spending, like handouts to special interests groups or corporate welfare subsidies, the government decided it was easier to reach into the coffers and drive federal spending to new heights.

Toss in end-of-fiscal-year “March madness” spending and the federal government’s annual outlays will – for the first time – break the 200-billion-dollar mark. How is this fiscally conservative or even “responsible?”

Mr. Flaherty is developing a reputation as being a big spending finance minister. Indeed, it is no contest between Mr. Flaherty and former finance minister Paul Martin over who is more fiscally responsible. It is Mr. Martin, by a long-shot.

Some might argue this comparison unjust since Mr. Martin tabled budgets in a majority government. As prime minister, Paul Martin was less “responsible” to be sure. During his two-year tenure he grew the size of government by 14%. And how much has government grown under Stephen Harper and his Conservatives in the same timeframe? It is – surprisingly – also 14%.

Looking ahead, Mr. Flaherty can continue mouthing empty rhetoric about controlling spending or he can start delivering. After two strikes it is hoped his third budget will finally deliver a dose of fiscal responsibility. If the Conservatives exercise even modest spending restraint they will be able to deliver meaningful personal income tax relief next year. The decisions Finance Minister Jim Flaherty makes in the upcoming budget will determine the size of tomorrow’s income tax cut. He should hold the line on spending, and taxpayers will thank him if he does.

John Williamson
Federal Director
Canadian Taxpayers Federation

Tax Savings in ’07 (Especially for Families) and Dips Down Again in ’08

Taxpayers Hope Next Budget will Cut Rates

Provincial Winners: Newfoundland, Quebec & B.C. The Loser: New Brunswick

Ottawa: The Canadian Taxpayers Federation (CTF) today released projected income, payroll and sales tax changes kicking in on January 1st, 2008. Also calculated are retroactive personal income tax changes – which apply to the 2007 tax year – announced by the finance minister in the fall economic statement that saw the bottom income tax rate fall to 15% from 15.5% and the basic personal exemption – the amount a person can earn before they pay federal income tax – increase by $671, from $8,929 to $9,600.

“Due to retroactive tax changes announced in the fall, coupled with changes that take effect in the New Year, almost all taxpaying Canadians will pay the Taxman less in 2007 and 2008. The exception is in New Brunswick,” stated CTF federal director John Williamson. “Thanks to the broad-based tax relief announced in the economic statement, the average taxpayer’s retroactive tax savings this year will be $223. This will climb to $272 after factoring in changes that take place next year. Families will save even more thanks to a new child credit worth $300 per child and a higher spousal exemption, which were also enacted for the ’07 tax year. Plus let’s not forget the January 1st GST reduction. While harder to quantify, it will save the typical Canadian household between $150 and $200 annually.”

“But taxpayers shouldn’t clap too loudly as Ottawa’s ‘new’ 15% rate simply restores the lowest income tax rate to what it was in 2005 before the Conservative finance minister raised it in his first budget. Jim Flaherty should be working to cut personal income tax rates, not patting himself on the back for returning them to the level they were when he came into office.”

To see the income and payroll tax changes in 2007 and 2008 for various income levels, households and for all 10 provinces go to Chart #1 at: http://www.taxpayer.com/pdf/2008_tax_burden.pdf

Tax Relief in 2008 – Only Modest Gains due to Indexation

Additional tax reductions next year are due mostly to the indexation of the personal income tax brackets. Other specific tax changes include:

Payroll Taxes: Minuscule EI Reduction and Bigger CPP Bite

Effective January 1, 2008, the employee rate per $100 of insurable earnings will be adjusted to $1.73, a reduction of 7 cents from its current level of $1.80. The corresponding employer rate will be adjusted to $2.42, a reduction of 10 cents from its current level of $2.52. The maximum insurable earnings will rise from $40,000 to $41,100 which is the ceiling up to which EI premiums are collected. Employees will therefore pay a maximum of $711.03 and employers $994.62 for a total EI payment of $1,705.65.

“With a $3.3-billion surplus in the EI fund last year, Ottawa should cut rates and match EI revenues to EI payments, allowing for only a modest reserve, and harmonize the employer rate with those of employees,” said Williamson. “Cutting this tax will help job creation and give manufacturers a break at a time when they are struggling with dollar parity.”

Under the Canada Pension Plan, the maximum pensionable earnings for 2008 will be $44,900 (up from $43,700 in 2007) and the basic exemption amount will remain unchanged at $3,500. The employee and employer contribution rates will each remain unchanged at 4.95%. Because the contribution rate is staying the same while the threshold (ceiling) increases, most taxpayers will pay slightly more in CPP payments in 2008. Employees and employers will each pay a maximum of $2,049.30 for a total CPP payment of $4,098.60.

See Chart #2 for EI and CPP tax payments and increases: http://www.taxpayer.com/pdf/2008_payroll_Taxes.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. Average worker will pay $50.43 more in payroll taxes and employers $46.02 more,” said Williamson. “Ottawa is wrong to increase the EI tax ceiling when the program continues to amass surpluses. 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 5% GST is a $5-billion Annual Tax Savings

The GST will be reduced by a further one percentage point on January 1, fulfilling the Conservatives’ marquee pledge to reduce the tax by two points. This additional cut will save the average household between $150 and $200 annually. “While some have criticized cutting the GST, it is a broad-based tax cut that puts $5-billion back in the pockets of over-taxed Canadians,” observed Williamson. “And given that this is the second point cut, the total household savings will be between $300 and $400 each year. This is good news particularly since $10-billion in the pockets of Canadian consumers is preferable to Ottawa hoarding the cash.”

Provincial Income Tax Changes

Three provinces have additional relief coming to its taxpayers in the New Year. Newfoundland and Labrador reduced all provincial income tax rates and has eliminated its provincial surtax altogether. The typical taxpayer will save $420 in provincial and federal taxes next year (plus GST savings). Quebec rates remain the same although the thresholds have increased substantially which will result in the largest tax savings in the country as of January 1st. The average Quebecer will pay $500 less next year (plus any GST savings). The tax savings will increase in each province as incomes rise above $45,000. Meanwhile, British Columbia has cut all of its provincial income tax rates except the top one which also results in additional savings. As such, average taxpayers in Lotus Land save $223 (again, plus GST savings).

New Brunswick’s provincial income tax increase in 2007 means all individuals earning more than $52,700 paid more income tax this year. Individuals with incomes below $52,700 paid less thanks to federal tax reductions, but their savings were smaller than other Canadian taxpayers because of the province’s tax hike.

See Chart #3 for provincial tax rates/comparisons: http://www.taxpayer.com/pdf/2008-provincial_taxes.pdf

More Relief Needed to Eliminate Structural Over-taxation

While the tax relief announced in Ottawa’s annual economic statement was a good start, Canadians remain over-taxed. “More must be done to reduce personal income taxes. It is not sufficient for parliamentarians to only discuss cutting taxes for low-income Canadians. 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 and means the French and Italians pay less personal income tax than Canadians,” noted Williamson.

“Broad-based tax relief is necessary to ensure all income levels benefit from lower taxes. Ottawa must focus on further reducing personal income taxes in the 2008 budget and we can suggest several options. At a minimum the Conservative government could chop the two middle rates of 26% and 22% a point each and raise the income threshold at which the top rate of 29% begins to apply to $200,000,” Williamson said. “This proposal can hardly be called radical as it was the tax relief model the Liberals campaigned on in the last election.

“Liberal leader Stephane Dion would have a hard time voting against his party’s own tax proposal if Minister Flaherty were to enact it in the next budget. While the Liberal caucus might squirm, it would be a good tax cut for overburdened Canadians. The goal is to lower income taxes and very few taxpayers will complain if it means implementing the Liberal’s old plan under a Conservative banner.”

John Williamson
Federal Director
Canadian Taxpayers Federation

Cut Taxes to Strengthen the Economy

By Adam Taylor and John Williamson

NEWS ALERT: Finance Minister Jim Flaherty will not table a budget in 2008. At a campaign-style event to draw attention to the Jan. 1 GST cut, Prime Minister Stephen Harper dashed hopes for additional tax relief. “We’re not going to undertake any long-run spending or tax-reduction initiatives unless we feel they are affordable,” he said. Budget reporters zeroed in on the dark economic clouds south of the border and concluded tax relief and spending initiatives are off the government’s agenda. Mr. Flaherty it seems can rest easy, his services are not needed.

Or are they? With a looming spring election, the unreported paradox is why would Messrs. Harper and Flaherty be publicly promoting their tax relief agenda as an economic tonic while simultaneously downplaying the likelihood of additional tax cuts when they will be most needed? That is, in either an economic slowdown or election battle. Are we to believe the Conservative government will throw away its fiscal card and instead fight the election on medicare, climate change and government integrity while financial conditions worsen? That is hardly sound policy-making or, for that matter, a wise re-election strategy.

It is probably too much to hope the next round of tax reductions will match Mr. Flaherty’s fall economic update. It cut taxes an impressive $60-billion by substantially lowering business taxes, reducing the GST to 5%, and reversing the personal income tax increase the government enacted in its first budget in 2006.

Those recent changes are a step in the right direction, but hardly taxpayer nirvana. As a result of the bottom income tax rate returning to 15% from 15.5% and a higher basic personal exemption (what a person can earn before paying federal income tax), an individual’s average income tax bill will fall by $223 in the ’07 tax year. The savings will repeat in 2008.

Families with children fare better. Thanks to a new child credit worth $300 per child and a higher spousal exemption – both enacted in the 2007 tax year – families with two kids, including single parents, save between $800 and $900 a year in income taxes (and keep adding $300 for every additional child under 18 years old).

Lowering the GST by two points will save the average household an additional $300 to $400 annually. Most economists criticized cutting the GST. Globe and Mail columnist Jeffrey Simpson went overboard, calling it “the worst piece of fiscal policy in a quarter of a century.” Worse, readers are to presume, than government policy of carelessly racking up $467-billion in debt over the past 25 years!

There is no reason why the GST cannot be reduced along with other federal levies as Ottawa lessens the tax burden on Canadians. Now that the government has fulfilled its GST promise, the Conservatives should turn to cutting the taxes that matter most – personal income rates.

Over the next six fiscal years, the federal surplus will exceed $50-billion. As such, there is ample room for the government to continue cutting taxes. There is no need for additional spending beyond inflation and population growth. According to the fall economic update, at the end of the 2008/09 fiscal year the three-year spending increase will exceed $32-billion. That is a cumulative increase of 18.5% in the size of the federal government since the Conservatives came to office.

Canadians remain over-taxed: Mr. Flaherty has said so himself, repeatedly. More needs to be done to ease this country’s heavy tax load. According to the Organization for Economic Cooperation and Development (OECD) Canada has the highest personal income tax burden of G-7 nations. Despite the location of a low-tax jurisdiction south of the 49th parallel, Canadians pay more income tax than the French and Italians do!

To correct this problem, Minister Flaherty needs to reduce Canada’s high marginal income tax rates. He should begin by cutting the two middle tax rates of 22% and 26% by one point each and raise the income threshold at which the top rate of 29% begins to apply to $200,000. If this plan sounds familiar it is because the previous Liberal government proposed it in its dying days and campaigned on it in the last federal election.

Politically, the Grits might squirm if forced to vote for or against a tax proposal they authored. But that should not be the primary reason for enacting it. Rather, it is a good tax cut for Canadians and will help the economy. The goal is to lower tax rates and very few taxpayers will complain if it means implementing the Liberal’s old plan under a Conservative banner.

Budget 2008 is the time to offer personal income tax relief. If the economy slows – as experts predict – taxpayers and businesses will be better able to cope paying less tax. The Conservatives should put the economy ahead of government spending and take care to ensure Canada’s wealth creators continue to generate jobs. A federal bureaucracy that has become 50% more costly since 1997 will not keep the economy afloat but the taxes needed to sustain it are an economic drag. In the same vein, Ottawa can do with fewer handouts to businesses and special interest groups.

With or without a slump, the government needs to spend less, spend more wisely and cut income taxes to ensure the country remains strong and our prosperity continues. Mr. Flaherty has his work cut out for him – the next budget will be the government’s most important fiscal test yet.

Adam Taylor is research director and John Williamson is federal director of the Canadian Taxpayers Federation.

Taxpayers Release Top 100 Tory Handouts

OTTAWA: The Canadian Taxpayers Federation (CTF) has compiled a list of the top 100 grants and contributions paid out by the Conservative government during its first budget year. The list tallies handouts for the 2006/07 fiscal year, which began on April 1, 2006, and ended on March 31, 2007.

The 100 largest payments total $3.3-billion and were doled out by 16 different government departments and agencies. These payments represent only a small part of Ottawa’s annual budget of $25-billion spent on grants, contributions and subsidies. (According to the finance department, the government’s total grant/subsidy budget accounts for just over 11 cents of each tax dollar spent.) For the list of 100 handouts compiled by combing the public disclosure of grants and contributions, click here: www.taxpayer.com/pdf/Top100.pdf

“While some public money is spent on legitimate initiatives and activities that fall within public expectations, funds are also spent questionably, inefficiently and in some cases, outright irresponsibly,” stated CTF federal director John Williamson.

Noteworthy Observations on Corporate Welfare, Transfers to Natives, QANGOs & Toronto:

The two largest handouts went to Pratt & Whitney Canada, the first for $213-million and second for $137-million. Other notable examples of corporate welfare include $47.5-million to the Mont Tremblant ski resort (12th overall ranking), $27-million for a soccer stadium in Toronto (34th spot), and Alcan pocketed $19.1-million (#75).

“Money is funneled to native bands despite the lack of accountability to Canadian taxpayers. Canada’s auditor-general is still not permitted to scrutinize those dollars,” stated Williamson. In its totality, the federal government currently provides over $9-billion a year to aboriginal groups across Canada, many of these transfers appear throughout the list of top 100 grants and contributions.

An alphabet soup of international agencies is prominently featured throughout the subsidy inventory. QANGOs (quasi-autonomous non-government organizations) and advocacy groups include: UNFPA (#14), UNODC (#33), OCHA (#41), UNDP (#57 & 58), WFP (#62 & 80), WHO (#63), DID (#64), CCA (#67), IADB (#70), International Planned Parenthood (#89), PAHO (#91), UNICEF (#92), and the World Bank (spots #6, 59, 60, 61, 65, 71, 85, 93 & 94). There is taxpayer-to-government funding as Ottawa transfers money to Mozambique, Burkina Faso, Senegal and Zambia (#56, 68, 69 & 79).

Most cities can only dream of the subsidies sent to Toronto: $120-million to the Canadian Television Fund (#5), the Toronto International Film Festival (#39) collected $25-million, over $24-million was handed to the Toronto Waterfront Revitalization (#42) and another $21-million to the Toronto Harbourfront Centre (#52) [Ed. note: how does a waterfront differ from a harbourfront?], the Greater Toronto Airports Authority (#84) obtained $18-million and $17-million went to Historica Foundation of Canada (#96). Of course, Toronto Mayor David Miller will say it is not enough.

John Williamson
Federal Director
Canadian Taxpayers Federation

Get Ready for Lower Taxes – Government Listening to Canadians

Conservative Government Outlines Fresh New Priorities

EDMONTON: The Canadian Taxpayers Federation (CTF) reacted to today’s speech from the throne, opening the Second session of the 39th Parliament.

“Today’s throne speech marks a significant step by the government towards lower taxes. Canadians can look forward to another one point cut to the GST as well as broad, multi-year tax relief for individuals, families and businesses,” said CTF federal director John Williamson. “The Conservative government has heard the demands of Canadians for tax relief and signaled today it will act accordingly by reducing its tax bite.”

“They must be serious given the throne speech announcement was made on primetime national television. We call on government MPs to ensure income taxes come down in short order,” said Mr. Williamson. “It’s pretty simple really: surplus dollars should be returned to taxpayers.”

On the Kyoto Protocol – Some Clearheaded Thinking:

“It’s fitting it was in the Senate, Canada’s place of sober second thought, that the federal government announced it will not meet its Kyoto targets,” observed Williamson. “Implementing the international agreement requires Canada to reduce average carbon dioxide emissions to 6 per cent below 1990 levels starting in 2008. Because the country’s output of greenhouse gases has increased by nearly 33 per cent above its target, draconian cuts in energy output are needed in short order. It cannot be done and Ottawa has finally acknowledged that fact. The Conservatives should be commended for being forthright with Canadian taxpayers. Moreover, they should be applauded for not wasting tax dollars on this scheme.”

This is What Democracy Looks Like – Elected Senator Appointed to the Red Chamber:

Senate reform advocate Bert Brown was finally appointed to the Senate, becoming its second ever elected member. Senator Brown won his second provincial Senate election in 2004 in the province of Alberta. “The Conservative government’s decision to appoint Bert Brown is a message to provincial governments. If provinces want their citizens to be fully represented in the upper chamber they need simply to consult voters in province-wide elections,” concluded Williamson. “Senator Brown’s appointment makes it clear Prime Minister Harper is prepared to heed the advice of voters by appointing their pick to the Senate.”

John Williamson
Federal Director
Canadian Taxpayers Federation

Will Ottawa Now Reduce Income Taxes?!?

· Structural over-taxation results in $14.2-billion surplus in 2006/07.

· Interest savings of $725-million go to future tax relief, but broad-based income tax reductions not on Conservative agenda.

OTTAWA: The Canadian Taxpayers Federation (CTF) reacted today to the announcement the federal government posted a $14.2-billion surplus in the 2006 fiscal year, considerably higher than its two earlier projections. The 2006 Budget (tabled in May, 2006) originally low-balled the surplus at $3.6-billion and the 2007 Budget (tabled March, 2007) increased that estimate to $9.2-billion. Ottawa missed its original target by almost 400% and its second estimate by more than 50%.

The surplus of $14.2-billion will be used to reduce Canada’s debt, bringing it down to $467.3-billion. Today’s debt reduction payment will save approximately $725-million in annual interest savings. Under the federal government’s new tax-back guarantee law the savings will be used to reduce personal income taxes. To date, the Conservative government has not lowered personal income tax rates, instead it has targeted income tax relief with a number of “boutique” tax reductions that favour some, but not all taxpayers.

“Canadians prefer that governments pass surplus budgets rather than deficit budgets, but this level of surplus is ridiculous. A $14.2-billion surplus means Ottawa is over-taxing Canadians by $14.2-billion. There is no excuse left, except political rhetoric, for Ottawa not to provide personal and business tax relief,” said CTF federal director John Williamson. “Annual surpluses represent over-taxation by government and the money should go back to taxpayers by way of income tax relief.”

For the Record – Surprise, Surprise:

Last year, when the Conservative government reported the 2005/06 surplus was $13.2-billion, Finance Minister Jim Flaherty said, “We’re going to budget much closer to the line … No more so-called surprise surpluses at the end of the fiscal year.”

“The government has shot its credibility on the surplus and is budgeting like the former Liberal government,” concluded Williamson. “The Conservatives downplay their ability to cut taxes, like the Liberals did. They sell massive surpluses as good news, just like the Liberals did. Canadians aren’t buying it any more and they recognize they are being gouged by Ottawa.”

Fiscal Outlook:

The CTF anticipates the surplus for the current fiscal year (2007/08) will again exceed $12-billion. The 2007 budget estimated it will be $3.3-billion.

John Williamson
Federal Director
Canadian Taxpayers Federation

Three Policy Proposals for Stephen Harper’s Government

Stephen Harper has all but exhausted his policy agenda and his government is adrift. This week, the Conservative caucus landed on Prince Edward Island for a strategy meeting. The Prime Minister should use these discussions to muster a new agenda before Parliament returns in the fall. Without one, the opposition parties will continue to advance their agendas in spite of the 2006 election results.

When Prime Minister Harper seizes the policy initiative, he governs well. Indeed, credit should be given to the Conservative government for implementing most of its five election promises. Those priorities are enacting the Federal Accountability Act, reducing the GST from 7% to 6% and signalling another point chop by 2011; replacing a planned daycare scheme with a universal child care allowance; developing medical wait-times guarantees with the provinces; and advancing legislation to get tough on criminals (the Senate is obstructing passage of the crime bills).

The federal government has also prepared the legislative ground work to make the Senate democratic and promote accountability on native reserves. Conservative bills will limit Senate terms to eight years and authorize voters to elect their Senate representatives. To improve the plight of natives, another bill will expand Canada’s human rights laws to native Canadians. (Aboriginal reserve governments are currently exempt from the Canadian Human Rights Act.)

Although the opposition is blocking these sensible reforms, the government should not yield – it is one thing to tie a bill up in Parliament and an altogether different ball game to explain in an election why senators ought to remain appointed or that aboriginals are not entitled to the same legal protections other Canadians take for granted. The Conservatives are well positioned here, but it will be a protracted campaign.

Mr. Harper’s immediate challenge is to identify taxpayer-friendly goals that resonate with voters. Initiatives like a national securities regulator might improve market efficiency but will not win many votes. The same is true of selling excess government buildings.

While Canada’s second minority Parliament has been productive, it has not generated the results many taxpayers had hoped for. What is most alarming is the unrelenting rise in spending. The Conservative’s two budgets boosted spending by $24.4-billion over two-years. As a result the size of the federal government has grown by 14%.

Evidence of bureaucratic feather-nesting came in July with a government study examining civil servants’ pay. It reported Canada’s bureaucracy is bloated and the mid-1990s budget cutbacks to the civil service have been undone. Public servants are paid an average salary higher than their private sector counterparts and receive rich benefit packages. Since 1999 the cost of the bureaucracy has increased by an astounding 50%.

Agenda item one for the Conservatives should be to cut spending. Item two should be to dedicate savings to debt reduction. Canada’s debt currently stands at $472-billion. Since 1961, debt interest and service charges have cost taxpayers almost $1-trillion. Canadians would welcome a plan to pay off the debt. It can be achieved if Parliament passes a debt repayment law with annual payments of 5% of total revenues. Each year, Ottawa squanders $34-billion paying interest. As the debt is reduced, significant savings will be realized through lower interest payments.

The third policy item is to cut income taxes, since Finance Minister Jim Flaherty is not taxing to collect money to fund programs, but rather finding ways to spend money government collects. Two years ago the federal surplus totaled $13.2-billion. Last year it was $9.2-billion. The spending of surplus dollars is responsible for Ottawa’s 14% expansion.

To moderate demands for tax relief, the finance minister has again underestimated this year’s surplus figure. In July, the department of finance reported a budgetary surplus of $3.5-billion for the first two months of the fiscal year. Mr. Flaherty’s March budget pegs it at $3.3-billion for the entire year. Mr. Flaherty’s surplus denials, “tax fairness” rhetoric, and nominal tax relief proposals have become tedious. Canadians pay too much tax and all deserve relief.

That makes three new proposals for Prime Minister Harper’s team to consider. Taxpayers are unlikely to be motivated for a political party that they see as being little different than the alternative. The Liberals are seriously considering some sort of tax relief policy, perhaps even income splitting. As such, the Conservative government is in danger of being outflanked where they should not.

John Williamson
Federal Director
Canadian Taxpayers Federation

Federal Spending: Only One in 10 Dollars Going to Defence Budget

Federal spending has increased dramatically since the Conservative Party won election in January 2006. Some Tory partisans argue the rapid rise is the result of one-time expenditures in equipment for the armed forces after years of Liberal neglect. It is not, they insist, irresponsible spending by a party trying to purchase a majority government.

Are they correct? Is a rising defence budget really responsible for spending going through the roof?

To date, the government has announced approximately $11-billion in military capital commitments as part of Prime Minister Stephen Harper’s undertaking to “equip and strengthen” the Canadian Armed Forces. However, Ottawa has only budgeted to spend half this amount.

The government’s “Canada First Defence Strategy” includes procurement of new armoured patrol vehicles, support ships, helicopters and the acquisition of tanks. The Conservative’s first budget, tabled in May 2006, proposed a plan to spend $5.3-billion over five years to modernize the Armed Forces. But the government allocated just $400-million to be spent in the 2006 fiscal year.

The second budget, tabled in March 2007, accelerated the implementation of the $5.3-billion defence plan by pledging to spend $3.1-billion over three years. According to the 2007 Budget, $900-million more will be spent this year, $1-billion in fiscal 2008, and $1.2-billion in fiscal 2009. The remainder of the $11-billion capital commitments will be spent in future years, most likely beginning in 2010.

During the last year of Liberal government rule, the Department of National Defence (DND) spent $14.7-billion in the 2005 fiscal year. The amount represented 8.4 per cent of Ottawa's total program spending.

As a result of the Conservative’s heightened military emphasis, the military budget increased to $15.2-billion in fiscal 2006. And Ottawa's spending estimates indicate the DND budget will rise to $16.9-billion this year (fiscal 2007). The bottom line is defence spending has increased by $2.2-billion under the Conservative government in its first two years in office.

Without a doubt, the federal government is spending more to re-equip and prepare the military for overseas engagements. This will strengthen Canada's military punch. But these expenditures do not adequately explain Ottawa's overall spending growth, which is fast rising. Defence spending is up, but so are other federal expenditures. Consider the numbers:

In fiscal 2006 — the first year under the Conservative’s watch — spending ballooned by $13.8-billion, rising from $175.2-billion when the Grits were removed from office to $189.0-billion under the Tories. This is the second biggest jump since the books were first balanced ten years ago. (Sadly it means several Liberal budgets were more prudent than Finance Minister Jim Flaherty’s fiscal framework.) For the current fiscal year, which began on April 1, spending is set to jump another $10.6-billion and level off at just under $200-billion. The military accounts for only a fraction of overall government spending growth.

The total two year spending increase under Minister Flaherty is an eye-popping $24.4-billion. This is a 13.9 per cent increase in federal receipts. Of the $24.4-billion increase, only $2.2-billion can be attributed to OttawaR17;s military budget. In other words, for every $10 spent in fiscal 2006 and 2007 less than one dollar is going to fund new defence hardware purchases.

In fact, the military share of overall program spending actually dropped from 8.4 per cent to 8.0 per cent last year because non-defence spending increased at a faster rate. This year it will be 8.5 per cent, which is only slightly higher than the percentage under the Liberals.

The rapid rise in spending has little to do with reinvigorating the armed forces after “years of neglect.” In reality, expenditure increases in Ottawa are not limited to a handful of priority areas, like the military. Rather spending is up across-the-board because the Conservative government neglected to cut spending in its non-priority areas, like corporate welfare, and overly-hyped “fiscal imbalances” with the provinces.

It is incorrect for government MPs and Conservatives to argue the large increase in military spending is driving Ottawa's recent spending spree. It is simply not the case when you look at how much has actually been budgeted, rather than what has been committed in future years.

John Williamson
Federal Director
Canadian Taxpayers Federation

Root Canal Narrowly Outpolls Tax Audit as More Unpleasant Experience

CTF public opinion poll also finds only 13% of Canadians expect to benefit from tax relief in the Conservative budget.

Ottawa – The Canadian Taxpayers Federation (CTF) released results of a public opinion poll in advance of Monday’s deadline for Canadians to file their 2006 income tax returns. The poll was conducted by Innovative Research Group for the CTF on (1) the tax relief in the federal budget, and (2) whether Canadians would prefer a root canal or a tax audit.

Canadian unconvinced they will personally benefit from tax relief in the new budget –

When Canadians were asked about the recent federal budget and how much the tax relief will help them a paltry 2% said “a lot” and only 11% said “somewhat.” A 67% majority of Canadians stated they will not personally benefit from the federal government’s tax relief. Of this sum 32% responded “not very much” and 35% “not at all.” The remainder either “don’t know” (2%) or “have not heard enough to say” (17%).

"It suggests the Conservatives missed an opportunity to brand themselves as the party of lower taxes. The governing Conservatives must do more on tax cuts if they want to make a positive impression on Canadian taxpayers,” said CTF federal director John Williamson. “The 2007 Budget did not provide broad-based personal income tax cuts and instead targets the tax relief. But very few taxpayers lucky enough to qualify for a tax break call it dramatic, deep or significant.”

Canadians divided on whether a “root canal” or a “tax audit” is more unpleasant –

When asked which is more unpleasant, 47% of those surveyed responded “root canal” and 38% said a “tax audit.” The remaining 15% “didn’t know.” Only Atlantic Canadians are wearier of the taxman (45% versus 43%), and Ontario respondents are split – with 45% saying a “tax audit” is more unpleasant and 45% believing a “root canal” is more disagreeable.

The online survey was conducted from April 4 to April 11, 2007, among 1,445 Canadian adults 18 years-of-age and older. The sample used has been weighted according to 2001 Census data to accurately reflect region, gender and age. The results are considered accurate to within +/-2.58 percentage points, 19 times out of 20.

The results are available online: http://www.taxpayer.com/pdf/CTF_Poll.pdf

John Williamson
Federal Director
Canadian Taxpayers Federation

Canada's New Government – Now 14% Bigger!

Taxpayers looking for truth in budgeting won’t hear it from Jim Flaherty. Since the federal budget was tabled on March 19, Canada's Finance Minister's conservative-sounding rhetoric suggests we have reached a new era of prudent budgeting in Ottawa. Nothing could be further from the truth.

Federal government expenditures are rising dramatically. In the 2006 fiscal year — the first year of Mr. Flaherty’s watch — spending ballooned by $13.8-billion, rising from $175.2-billion to $189.0-billion. This is the second biggest jump since the budget was balanced a decade ago. In other words, several Liberal budgets were more prudent than Mr. Flaherty’s work. The outlook isn’t much better for the coming fiscal with spending set to jump another $10.6-billion, levelling off at $199.6-billion.

The Finance Minister dismisses any criticism that he has become a big spender even when his two-year binge will total $24.4-billion. As National Post columnist Andrew Coyne calculates, Mr. Flaherty is now “the biggest-spending finance minister in the history of Canada. It’s a sad achievement but well-earned since Canada's New Government is now 14% bigger after two Flaherty budgets.

Because the finance minister cannot refute the math he has tried to justify his recklessness. For example, he has downplayed the spending numbers by saying two-thirds of it should not be counted since the cash will be transferred to other levels of government. This is absurd. Conservatives in opposition routinely berated Liberal spending increases without discounting the billions of dollars in transfers the previous government delivered to the provinces and municipalities. What’s the difference?

Mr. Flaherty is also exaggerating the size of his tax relief package. He has said, "Canada's new government has introduced nearly $38-billion in individual tax relief over [three years].” Canadian taxpayers should be so lucky. The 2007 Budget did provide modest relief to low-income Canadians and families with children. It also reaffirmed already announced tax breaks for seniors, including pension splitting.

If the tax relief was as large as the minister claims, it would be reflected in the budget’s revenue tables. Yet the only tax reduction that has actually resulted in a decrease in Ottawa's revenue bite is the one-point GST cut.

According to the 2007 Budget, GST revenues were $33-billion in fiscal 2005. In fiscal 2007, Ottawa will collect $30-billion from this tax — that’s a drop of $3-billion. Turn now to personal income taxes. Two years ago, these revenues totaled $104-billion. This year Ottawa will collect $115-billion and the amount rises to $121-billion next year. If Mr. Flaherty thinks this calculation unfair, we can instead measure the tax bite as a percentage of the economy as the budget does. In fiscal 2005, GST revenue accounted for 2.4% of GDP, dropping to 2.0% in 2007. Personal income taxes meanwhile will rise to 7.7% of GDP this year, up from 7.6% two years ago. More tax revenue going to Ottawa means the Conservative’s tax relief was neither deep nor dramatic.

A new tax measure in the 2007 Budget will also result in Ottawa collecting more revenues from businesses. Closing an interest deductibility loophole will, according to budget estimates, result in $40-million more flowing to government coffers. Yet a finance official claims this amount is just “the tip of the iceberg.” Private-sector forecasts say the tax measure is worth hundreds of millions of dollars a year.

Of course, there is much to be gained from reforming and simplifying the tax code. Yet whenever a government eliminates or reduces a tax deduction or credit, the finance minister should offset the revenue increase dollar for dollar with a corresponding reduction in the general tax rate. Mr. Flaherty hasn’t done this.

The 2007 Budget was a missed opportunity to use the government’s massive surpluses to lower personal income taxes. Instead of seizing it, Mr. Flaherty went on a wild, George W. Bush-style, big government spending spree. Although Ottawa is not running annual deficits, large surpluses are not the hallmark of a responsible government either.

A surplus is the result of ongoing over-taxation by the state. High taxes weaken a nation’s competitiveness by removing resources from the private sector and impeding economic growth. The Conservative’s budget is proof a balanced budget does not force lawmakers to control spending because it can happen by way of high taxes.

John Williamson
Federal Director
Canadian Taxpayers Federation

Budget 2007: A Stronger, Safer, Better Canada

The minority Conservative government has released its second federal budget since coming to power. According to the Finance Department web site, The Honourable Jim Flaherty, Minister of Finance, tabled today "a balanced budget that moves to restore fiscal balance in Canada, cuts taxes for working families, reduces the national debt and invests in key priorities like improving health care and environmental protection."

Selected budget information as well as the full text of the federal budget appears on the Finance web site at:
http://www.budget.gc.ca/2007/index_e.html

CCPA Alternative Budget 2007

In timing with the 2007 federal budget, the Canadian Centre for Policy Alternatives has released its Alternative Federal Budget 2007: Strength in Numbers. The news release from the CCPA web site follows:

Federal surplus evaporating: Think-tank Harper plan at odds with Canadian priorities

OTTAWA--The Harper government is on the brink of exhausting its fiscal surplus on a pre-election spending plan that is at odds with what Canadians want, says the Canadian Centre for Policy Alternatives.

The Centre released a national Environics poll today showing that any government that takes concrete action to reduce Canada's growing income gap would enjoy support from the majority of Canadians.

Yet the Centre's 2007 Alternative Federal Budget, released today, warns that the federal surplus that should be used to invest in Canadian priorities could quickly disappear.

"Prime Minister Harper's tax cuts plan is so expensive, he may soon find himself having to choose between putting the nation back into deficit or slashing programs," says CCPA senior economist Ellen Russell.

The Centre predicts the 2006-07 surplus will be $9.2 billion but the Harper government will need more money than this to pay for its pre-election promises. The surplus could run out as early as next year.

"There may soon be no surplus left to address Canadians' priorities, such as child care, affordable housing and tuition," Russell says. "Prime Minister Harper is putting Canada into a no-win situation - and he's at odds with what Canadians say they want."

This year's Alternative Federal Budget shows there is a way to invest the surplus in tangible programs that support Canada's working families while keeping the nation in a balanced budget situation.

Alternative Federal Budget 2007: Strength in Numbers is available from the CCPA web site: http://www.policyalternatives.ca

Towards a Tax-Back Guarantee & a Taxpayers Bill of Rights

The Conservative government is set to enact a tax-back guarantee after the federal budget is tabled on March 19. The proposal is to lower taxes using interest savings that occur naturally when government debt is reduced. OttawaR17;s debt stands at $481.5-billion and annual debt interest payments are more than $34-billion. Should Ottawa make debt reduction a priority, the tax-back guarantee will be a boon to taxpayers.

The challenge for Finance Minister Jim Flaherty is to ensure the guarantee mechanism triggers tax relief automatically. If the government neglects to put in place workable legislation, the initiative will be labeled a political gimmick.

Budget ’07 affords the finance minister an opportunity to deliver tax relief to Canadians. Thanks to Mr. Flaherty’s sound decision to use last year’s budget surplus of $13.2-billion to pay down debt, Ottawa will save $700-million a year on interest payments. The surplus in the current fiscal year is projected to be $7.2-billion and despite rampant public spending, many observers expect it will top $10-billion when the books close on March 31st. If this surplus is also applied against the debt, the combined interest savings will permit Ottawa to cut taxes annually by $1.2-billion. That’s a good start.

Mr. Flaherty should go further and make deeper income tax cuts, for two reasons. First, the unexpectedly large surpluses are politically embarrassing to a government that vowed to end the practice of low-balling surplus projections. Second, a surplus is just a fancy word for over-taxation and excess tax dollars should be returned to taxpayers.

Mr. Flaherty has already pledged to reduce debt by $3-billion annually until at least 2021. Each repayment saves Ottawa about $170-million in annual interest costs. Yet a tax-back pledge is not a guarantee of a tax break. If the government is serious about this commitment it should make it law to ensure future debt reduction results in automatic tax relief – as a dividend to taxpayers – in the subsequent fiscal year.

Legislation ensures interest savings are not subject to political manipulation. Interest savings must be placed in a lock box – beyond the reach of politicians – so it flows automatically to taxpayers by raising income tax thresholds, for example. The law must also state the tax refund flowing from the guarantee is permanent and will not be repealed if interest costs rise. Should borrowing rates increase, Ottawa should not solve any shortfall on the backs of families, many of whom carry mortgages and debt of their own. Ottawa will instead need to reduce its spending.

The other predicament facing Mr. Flaherty, and his cabinet colleagues, is to control year-end spending and resist spending down anticipated surpluses. Under a tax-back guarantee if debt relief is more aggressive, the corresponding tax relief could be larger. And that’s the rub: the Conservatives are hardly better at managing budget surpluses than the Liberals. Mr. Flaherty has rebuked the old Liberal government for increasing program spending by “an average of 8.2 per cent annually.” Yet unless the government slows the “March madness” spending bender, program expenditures will climb by almost 8 per in 2006/07.

The machinations of government make controlling spending difficult. There are presently no legislative constraints on federal spending. As such, parliamentarians announce new programs, tally up the costs, and pass a budget to fund them.

One way to prevent governments from spending down the surplus before the books close at year end is to enact tax/expenditure limits (TELs). Such restrictions control spending and prevent politicians from driving the budget process off the rails. Parliament should trade off spending in priority programs with cuts in lower-priority areas. A Canadian TEL should cap each year’s spending increase at the rate of inflation plus population growth and require all revenues collected above the spending cap to be returned as tax refunds. A three per cent emergency reserve would be permitted to keep the budget balanced. Passing TELs along with a tax-back guarantee ought to be enacted as part of a Taxpayers Bill of Rights.

CanadaR17;s surpluses are certainly not a direct threat to the economy, but ongoing over-taxation by the federal government does weaken the nation’s competitiveness and leave families with lower take-home pay. High taxes and high spending removes economic resources from the private sector and impedes growth and prosperity. A balanced budget does not necessarily force lawmakers to control spending because it can happen by way of higher taxes and higher spending.

Ottawa has a revenue problem and a spending problem. Mr. Flaherty can solve the first by cutting taxes on March 19, a move today’s taxpayers will thank him for. He can fix the second by legislating expenditure limits. This will ensure government programs do not grow at unsustainable rates and force higher taxes to be paid by a future generation of taxpayers.

John Williamson
Federal Director
Canadian Taxpayers Federation

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.

Child Care Allowance

Ottawa’s $1,200 Child Care Allowance Good for Families
Government Must Stop Funding Daycare Special Interest Groups

Ottawa: The Canadian Taxpayers Federation (CTF) reacted to today’s announcement made by Human Resources & Social Development Minister Diane Finley that Ottawa will move quickly to enact the new Universal Child Care Benefit plan. The 2006 Budget confirmed the Conservative government will provide all families with an annual $1,200 allowance for each child under the age of six (which will be taxed in the hands of the spouse with the lower income).

“The child care allowance means Canadian parents will have more money in their pockets to help with the costs of child rearing. The allowance means parents will have more choice to determine how best to raise their kids,” said CTF federal director John Williamson. “It is better parents have that money than institutional daycare providers.”

A universal child income tax credit/payment was proposed by the CTF in its 2006/07 pre-budget presentation to the House of Commons Finance Committee in October, 2005.

“The previous government’s daycare program was flawed because it passed money from politicians in Ottawa to other politicians in provincial capitals,” added Williamson. “It put the priorities of bureaucracies and daycare providers ahead of Canadians families.”

End Government Financing of Political Advocacy Groups –

The CTF is concerned the federal government has not moved to cut Ottawa’s funding of advocacy groups, and specifically, organizations that spend tax dollars to urge politicians adopt an institutional daycare scheme.

“Today, the CTF is calling on the federal government to review its funding of third party advocacy organizations,” said Williamson. “Each year Ottawa spends between $6-billion and $8-billion bankrolling the activities of special interest groups, non-government organizations and third party groups. Many of them use tax dollars to lobby Ottawa and the public to support their political objectives. This must stop. Organizations or citizens that wish to influence public policy should solicit voluntary financial support from Canadians and not do so with tax dollars. Ottawa must not compel taxpayers to support political advocacy work.”

John Williamson
Federal Director
Canadian Taxpayers Federation

Why Are Personal Income Taxes Going Up?

Income taxes to increase to 15.25% this year and 15.5% in 07’
A 6% GST is a welcome start, but more tax relief needed
Program spending up 5.3% this year and 4.1% in ’07
Nothing to lower gas taxes or abolish the gun registry

Ottawa: The Canadian Taxpayers Federation (CTF) reacts to the 2006/07 federal budget, which was tabled in the House of Commons by Finance Minister Jim Flaherty this afternoon.

Tax Relief for Canadians –

“The bottom line for average taxpayers is a net benefit in 2006 and larger tax savings in 2007. Yet the federal government’s lowest personal income tax rate will rise. In 2005 it was set at 15 per cent and applied to the first $35,595 of income. The Conservative’s first budget will see this rate increase to 15.25 per cent this year and to 15.5 per cent in 2007,” said CTF federal director John Williamson. “So while the GST is being cut by one point, income taxes paid by ordinary Canadians will go up.”

“The one group that will benefit immensely from this budget is Canadian households with young children,” noted Williamson. “Economically, they will rocket ahead thanks to the government’s fulfilment of its promise to provide all families with $100 a month for each child under age 6.”

Federal Finance Department briefing documents prepared for Finance Minister Flaherty state that Canada’s “personal and corporate income tax burden are the highest among the G7 countries.”

“Budget 2006 does take steps to reduce a series of regressive corporate taxes, particularly on small and medium businesses,” said Mr. Williamson. “The measures include immediately abolishing Ottawa’s capital tax, eliminating the corporate surtax in ’08, and reducing the general business tax rate to 19 per cent from 21 per cent by 2010. Yet this government should have moved to bring down personal income taxes. This will need to be the top priority for the 2007 Budget.”

Gas Taxes –

In August, 2005, then-Opposition leader Stephen Harper blasted the Liberal government for refusing to reduce gas taxes as prices soared. “There is no reason for the federal government to profiteer when consumers are hurting,” he said urging the previous Liberal government to give motorists a break. “This is causing considerable dislocation. There are a lot of people on fixed incomes. There are a lot of businesses on thin margins that are going to be affected by this.”

“The price of gasoline has skyrocketed. Last week the national average price was over $1.00 per litre,” noted Williamson. “Despite the Prime Minister’s promises to reduce gas taxes, there is nothing in the budget to accomplish this goal. This is a disappointment.”

The Debt & Surplus Picture –

“We are pleased Minister Flaherty will reduce Canada’s monster debt by $8-billion last year and another $3-billion this year,” Williamson stressed. “Unfortunately the government will not implement a legislated debt reduction schedule. Debt servicing will chew up $35-billion this year, which amounts to $95-million each day. Ottawa should set yearly debt reduction targets as was done with the deficit and make those targets the law.”

Overall Size of Government to Increase due to Modest Spending Growth –

“Ottawa’s program spending growth will increase by 5.3 per cent this fiscal year to $189-billion, and another 4.1 per cent in 2007 topping out at $196-billion,” said Williamson. “If the government is capable of reducing spending in its non-priority areas and holding growth in others, the Conservatives will be able to offer broadly-based income tax relief in next year’s budget.”

What About Eliminating the Gun Registry?

In 1995, Canadians were told by Ottawa that the federal gun registry would cost $2-million and there would be no substantial cost to taxpayers due to registration fees. In 2003, the Auditor-General stopped an audit due to incomplete information and predicted the registry would cost taxpayers $1-billion. The price of registry is on track to exceed $2-billion.

“The Harper government needs to abolish the gun registry,” concluded Williamson. “If it does not have the necessary votes in the House of Commons to do so, it should cut off the program’s annual funding allowance and starve it instead. ”

John Williamson
Federal Director
Canadian Taxpayers Federation

2006 Federal Budget

Minister of Finance Jim Flaherty presented the 2006 federal budget, the first by a Conservative government in thirteen years, that proposes tax cuts and pays down debt.

The budget purports to deliver $20 billion in tax relief over two years. Some of the highlights include:

- a one-point reduction to the GST, effective July 1, 2006
- targeted tax measures to help Canadians with the cost of tools, textbooks, transit passes, and childrens' sports.
- $3.7 billion over two years for the new $1,200 Universal Child Care Benefit
- $1.5 billion more this year for agriculture.
- $1.4 billion more this year for policing, border security and public safety.
- $1.1 billion more over two years to rebuild the Armed Forces.

For all Budget 2006 information, see the Department of Finance Canada website at:
http://www.fin.gc.ca/budtoce/2006/budliste.htm

Alternative Federal Budget

The Canadian Centre for Policy Alternatives (CCPA) has released its 2006 Alternative Federal Budget, entitled "Alternative Federal Budget 2006: Moving Forward". According to the CCPA:

"This year's AFB demonstrates how the federal government has the resources to maintain and build on the commitments made in the 2004-05 minority Parliament and use upcoming surpluses to move forward on a progressive agenda."

"The AFB argues that Canadians will be much better served by investing the surplus into a range of public services that address the most important problems facing the country today."

The news release and the entire alternate budget document are available on the CCPA web site at http://www.policyalternatives.ca.

The Party that Cried Wolf!

Liberal’s fiscal forecasting lacks credibility

Ottawa: The Canadian Taxpayers Federation (CTF) today responded to concerns raised by the Liberal Party that campaign promises made by the Conservative Party will result in chronic deficits. Over the weekend, Prime Minister Paul Martin said, “I know these numbers and I know that we’ve got a very strong economy because we stayed out of deficit and I will be very, very interested in how all [the Conservative] numbers add up.” The Liberals say the Conservative plan will produce deficits “of at least $12.4-billion over five years.”

“The Liberal government has so poorly predicted past surpluses that its credibility to calculate future deficits or surpluses is simply not believable today,” said CTF federal director John Williamson. “It is like the boy who cried wolf, only Mr. Martin is crying ‘deficits, deficits’ and taxpayers, fooled before, should not be duped again.”

Following the November, 2005, pre-election mini-budget the CBC online news reported, “[Finance Minister Ralph] Goodale’s last [2004] economic and fiscal update projected that the surplus for 2005/06 would be $500-million, followed by $900-million in 2006/07. Monday's document revised those figures to $8.2-billion and $9.2-billion, respectively.”

“In other words, the Martin government was off by ‘only’ $16-billion, $7.7-billion in year one and $8.3-billion in year two,” noted Williamson. “And let’s not forget that when the 2004 budget was tabled the Liberal government said program spending would increase by 3.1 per cent. When the fiscal year ended, however, it had increased by an astounding 15.1 per cent. I think that’s all we need to say about Mr. Martin’s knowledge of the numbers and his ability, as prime minister anyway, to budget responsibly.”

John Williamson
Canadian Taxpayers Federation

Liberal Government’s Pre-Election Spending Bender

Liberal Government’s Pre-Election Spending Bender – Largest in Canada’s Electoral History

Ottawa: From November 3rd to November 25th, the Canadian Taxpayers Federation (CTF) tracked 145 pre-election spending announcements totaling $24.5-billion made by Paul Martin’s Liberal government. Last week alone – November 21st to November 25th – the federal government’s spending binge topped $20-billion, unveiled in ribbon-cutting ceremonies and news wire stories across Canada.

“Announcing $24.5-billion in spending over 23 days works out to more than $1-billion per day or $44-million every hour,” observed CTF federal director John Williamson. “With the federal government budgeted to spend $163.7-billion on all programs in fiscal 2005/06, $24.5-billion represents 15 per cent of the entire fiscal year’s planned expenditures.”

The CTF estimates that half of these announcements represent new spending not included in either the 2005 Budget or the 2005 Economic Update released on November 14th. Further, most of the spending is being announced in swing ridings where the Liberals are vulnerable and where the electoral battles are tight between government members and the opposition parties.

Some of the spending gems include:

$332,528 for assisting Quebec’s blueberry industry.
$139,000 for fish harvesters skills promotion in Halifax, Nova Scotia.
$276,000 for the Bata Shoe Museum in Toronto, Ontario.
$361,666 to put synthetic turf on a soccer field in Longueuil, Quebec.

For a complete breakdown of the CTF’s “Spend-O-Meter” go to:

http://www.taxpayer.com/pdf/Liberal_Pre-election_Spending_promises.pdf

“Politicians used to throw salt pork at voters to win their support in an election,” concluded Williamson. “Today’s scheme is simply using tax dollars and the government’s spending powers for blatant electioneering. The federal government has embarked on the largest pre-election spending spree in Canadian history.”

John Williamson
Canadian Taxpayers Federation

Taxpayers Federation Unveils Budget Measures

Dramatic Tax Relief Needed to Eliminate Ottawa’s Over-Taxation of Canadians

Ottawa: The Canadian Taxpayers Federation (CTF) appeared this morning before the House of Commons Standing Committee on Finance. Federal Director John Williamson presented the central pre-budget recommendations from the CTF’s submission, A Return to Fiscal Responsibility, for the 2006/07 federal budget.

The CTF’s agenda items include:

· Reducing the top two personal income tax rates by 3% – phased-in over three years – from 29% to 26% and 26% to 23%;

· Increasing both the Basic Personal Exemption and Spousal Exemption to $15,000 within four years to provide tax relief for all Canadians. This change will remove 1.8 million Canadians from the tax rolls and benefit the remaining 13.8 million taxpayers;

· Replacing the Canada Child Tax Benefit with a universal $10,000 per child income tax credit. The credit (or $1,600 payment) should be available to all parents with children aged eighteen and under;

· Limiting expenditure growth to a maximum annual amount of inflation and population growth;

· Instituting a legislated debt repayment schedule with annual payments of 5% of revenues;

· Redressing inequalities in the Employment Insurance payroll tax regime by lowering and harmonizing employer premiums with those of employees;

· Ending all corporate welfare and regional development programs, scrapping the federal gun registry, and abrogating the Kyoto Protocol; and

· Reducing the excessive mortgage insurance rates charged to Canadian homebuyers by the Canada Mortgage and Housing Corporation, and rebating them for existing owners to offset the $4.5-billion surplus this Crown corporation is projected to accumulate by 2009.

The complete CTF 2006/07 pre-budget submission is available at:

http://www.taxpayer.com/pdf/Federal_Pre-Budget_2006-07.pdf

Federal Spending is Unsustainable:

“Last year, Ottawa’s program spending jumped by over $21-billion, that’s an astounding 15% increase in a single year. Our tax dollars were squandered,” observed Mr. Williamson. “Increasing spending at such a pace is simply not responsible and highlights that Ottawa collects too much in taxes.”

Canadians Remain Over-Taxed:

“Multi-year and multi-billion dollar surpluses are the result of a structural level of over-taxation levied on Canadians by Ottawa,” said Williamson. “The simplest and best remedy for remedying over-taxation is broadly-based tax relief. The tax saving measures outlined by the CTF today will return $13.4-billion to Canadians next year and $41.4-billion in 2009.”

John Williamson
Canadian Taxpayers Federation

Ontario Budget 2005

Yesterday the McGuinty Liberal government unveiled its second budget. The Budget contains no new taxes but delays balancing the provincial budget to 2008-09 although the deficit may be eliminated a year earlier if the reserve is not required. Highlights of the Ontario Budget 2005 include:

- $6.2 billion more will be spent on postsecondary education and training between now and 2009-10 including:

-- increased financial aid for low- and middle-income students;
-- increasing the number of college and university students enrolled in postsecondary education;
-- expanding new first-year medical education spaces by 15 per cent; and
-- increasing the number of new apprentices to 26,000 annually by 2007-08.

- more doctors and nurses, reducing wait times and keeping people healthy

- strengthening Ontario's economy through critical investments in infrastructure and innovation, including a five-year, $30 billion infrastructure plan for roads, transit, hospitals, schools, colleges and universities, more affordable housing and a proposed Research Council of Ontario.

More information on the Ontario budget can be found at the Ontario Budget 2005 Home

Excise Tax on jewellery to be phased out

Importers and manufacturers of certain jewellery goods will see the amount of Excise tax paid on those goods reduced from 10 % to 8 % as of February 24, 2005. Budget 2005 proposes that the excise tax on jewellery be phased out through a series of rate reductions over the next four years.

The measure is in response to a study by the House of Commons Standing Committee on Finance relating to federal tax measures to help small businesses in certain sectors, including excise tax and duty relief for jewellers, small brewers and wine-makers, and measures to improve access to capital for agricultural cooperatives.

The list of products includes: jewellery (diamonds and other precious and semi-precious stones for personal use) and gold/silversmiths' products, clocks and watches, as well as articles made (in whole or in part) of natural shells and semi-precious stones. Over the next four years this tax will be phased out completely.

More information is available on the federal budget site:
http://www.fin.gc.ca/budget05/bp/bpc4de.htm

2005 Federal Budget Highlights

The Minister of Finance, Ralph Goodale, presented the 2005 federal budget on February 23. Somewhat driven by being a minority government, the budget proposes several tax cuts - most of them modest and phased-in over time. Some highlights include the following:

* increasing spending in many areas including the environment, health care, municipalities, and the military;
* reducing debt;
* sharing federal gas tax revenue with the municipalities;
* increasing the basic personal amount, albeit gradually, to $10,000 for 2009 (i.e. the amount of income a Canadian can earn tax-free);
* increasing personal credits in respect of a spouse or common-law partner or a wholly dependent relative;
* increasing Guaranteed Income Supplement benefits for low-income seniors;
* enhancing tax assistance for persons with disabilities and caregivers;
* eliminating the 30% foreign property limit on pension and registered retirement savings plan investments (a surprise move done "in the name of enhancing global investing");
* increasing the RRSP and RPP deduction limits;
* expanding the list of eligible medical expenses;
* introducing a 16% non-refundable adoption expense tax credit;
* eliminating the corporate surtax on January 1, 2008;
* reducing the general corporate income tax rate over several years - this will not apply to small business income or investment income of Canadian-controlled private corporations as they continue to be eligible for their own special tax provisions; and
* revising the previously proposed "reasonable expectation of profit" test as a result of public consultation.

There are several good links through which you can find general and detailed information as well as commentary on the budget.

Canada Revenue Agency
http://www.fin.gc.ca/budtoce/2005/budliste.htm

Certified General Accountants of Canada
http://www.cga-canada.org/budget2005/

Canadian Insitute of Chartered Accountants
http://www.cica.ca/index.cfm/ci_id/25160/la_id/1.htm

Many accounting firms and law offices will also have valuable insight into the budget.

Caren MacLeod
Scott Rankin & Gardiner
www.srgg.com

CTF Rates Federal Budget 2005

The Good, the Bad and the Ugly

*Personal income tax relief starts out measly, rises by 2009
*More money down the Kyoto sinkhole – Talk of green taxes
*Program spending in 2004/05 up 11.8% – Original target was 4.6%
*But Wait (a Little) More Good: Debt re-payment continues and federal gas tax revenue finally starts to flow to cities

Ottawa: The Canadian Taxpayers Federation (CTF) reacted to the 2005/06 federal budget, which was tabled in the House of Commons by Finance Minister Ralph Goodale this afternoon.

The Good: Tax Relief for Canadians

"Starting in 2006 Canadian taxpayers will have a little more money in their pockets thanks to a higher personal income tax exemption, but the initial tax savings is laughable although it will grow overtime," said CTF federal director John Williamson. "In 2006 an individual taxpayer’s personal income tax bill will be cut by a measly $16, but rise to $192 a year in 2009. The savings for two-income families will be $32 in the first year and $384 by 2009, whereas families with a stay-at-home spouse are slightly short-changed with savings of $30 in 2006 and $370 in 2009."

"Despite Ottawa’s multi-year and multi-billion dollar surpluses, which really represents an ongoing over-taxation of Canadians, the government is delaying until 2009 what is at best described as modest tax relief until 2010," noted Williamson.

The Bad: More Tax Money for Kyoto – Still No Plan

The federal government will continue its largely ineffective Kyoto Protocol strategy of spending billions of dollars. Budget 2005 commits $1-billion into a Clean Fund to encourage business to reduce greenhouse gas emissions; another $200-million will be dedicated to wind power; $300-million for the Green Municipal Fund; $225-million for home renovations; and $97-million on hydro development. More ominous for taxpayers is the potential shifting of strategies: The Case for Green Taxes (see annex four of the budget, page 314-327), in which the federal governments makes a public policy argument in favour of a green tax.

"Despite all assurances that any new taxes introduced that will be offset by taxes in other areas, taxpayers are deeply concerned this sort of rhetoric will result in new taxes and a higher tax burden for Canadians," said Williamson. "The CTF opposes a ‘green tax’ and will loudly oppose any new increase that does not include an equivalent reduction in other broadly-based taxes, for instance lower personal incomes taxes."

The Ugly: Budgets Not Being Followed, Spending Set to Shoot Up (Again)

Under Prime Minister Paul Martin, the Liberal government’s program spending (this figure excludes public debt charges) totaled $141.4-billion in 2003/04 (last year), it increased to $158.1-billion in 2004/05, and will jump to $161.3-billion in 2005-06. In addition, estimated gross surplus figures will be $3.0-billion this year, $4.0-billion in the coming fiscal year, and $5.0-billion in 2006/07.

"The government appears incapable of living within the budgets it has set for itself. For instance when the budget was tabled last year, Minister Goodale said program spending in 2004/05 would be $148-billion. When the Economic Update was delivered in November we were told it would, in fact, rise to $151-billion. And today the budget reveals spending in 2004/05 will be $158-billion. Ottawa missed its original budget target by an astounding $10-billion. This is not a government that is budgeting responsibly and its actions make a mockery out of future spending projections, which should be increased by at least a factor or two."

"Since the budget was balanced, program spending has risen 48 per and is projected to climb by 82 per cent in 2009/10," Williamson noted. "Mr. Martin’s spending still outpaces the combined growth of inflation and population growth, which breaks his own Budget 2000 pledge that spending will be limited to inflation and population growth."

More Good: The Debt & Surplus Picture

"We are pleased Minister Goodale will reduce the debt by $4-billion this year," Williamson stressed. "And we applaud the federal government for reducing more than $60-billion in net debt over the past 8 years. Unfortunately the government has again refused to implement a legislated debt reduction schedule. Debt servicing will chew up $35-billion this year, an astonishing 20 cents of each dollar collected. Ottawa should set yearly debt reduction targets as was done with the deficit and make those targets the law."

And a Little More Good: Infrastructure Initiatives — Cities & Communities Agenda

The 2005 budget will – finally – begin to share federal gas tax revenue with municipalities. Last year, Ottawa rebated the GST paid by city governments. In 2005/06, the share of the federal gas tax dedicated to cities and communities will be $600-million. By 2009-10, the share will increase to $2-billion, representing 5 cents per litre. Since 1999, the CTF has advocated dedicating half of the federal fuel tax revenue with all Canadian municipalities regardless of size. Ottawa collects approximately $5-billion in fuel taxes, yet returns a paltry 3 per cent to roads.

"Early in February the Infrastructure Minister John Godfrey announced Ottawa would allocate gas tax revenues on a per capita basis," noted John Williamson. "We completely agree with this approach because it treats all municipalities equitably and includes all cities, big and small alike. We believe the money should be used for infrastructure projects, highway maintenance and roads. The government appears to be doing what we have advocated on this file, and that’s good news for taxpayers."

John Williamson
Canadian Taxpayers Federation
www.taxpayer.com

The full text of this posting including tables and figures is available at:
http://www.taxpayer.com/main/news.php?news_id=1926

2005 Federal Budget

Scarcely half an hour ago, at 4:00pm EST, the 2005 Federal Budget documents became available on the Government of Canada Finance Department web site.

With the issues of the gun registry, sponsorship scandal, mad cow disease, SARS, the war in Iraq, and Kyoto still fresh in our minds, the Budget predictably responds with its stated priorities of maintaining sound financial management, securing Canada's social foundations, achieving a productive and growing economy, moving towards a green economy and sustainable communities, and meeting our global responsibilities.

Support for health care is re-emphasized in this budget as is further solidification of our role in international aid and assistance. New to this budget is a deal for Canadian communities, allowing them to share in the proceeds of the gas tax revenues. Job creation and innovation also play a role in the budget as money is allocated to invest in people, skills, ideas, and regional development. More than $10 billion is also dedicated to enhancing the quality of our air, land, and water through environmental programs.

The issue of tax primarily appears in the Budget's "A Fair and Competitive Tax System" found in "Chapter 4 - A Productive, Growing and Sustainable Economy".

Tax highlights include:

- improving tax assistance for persons with disabilities;
- increasing to $10,000 the limit Canadians may earn without paying tax;
- removing 860,000 taxpayers from the tax rolls, including about 240,000 seniors;
- proposing the elimination of the corporate surtax and reducing the general corporate income tax rate by 2%; and
- enhancing tax incentives for efficient and renewable energy generation equipment.

Budget 2005 claims that most of the tax benefits will go to low- and modest-income Canadians. (Over 70 per cent of the tax relief will go to those earning less than $60,000 per year.) While the Budget increases to $10,000 the limit Canadians may earn without paying taxes, the RRSP annual contribution limit is also raised to $22,000 by 2010. The question remains, how many low- and modest- income Canadians can afford to put $22k a year into their RRSPs?

Time and a closer examination of the Budget details will shed light on the benefits to Canadians of modest incomes. Over the coming days and weeks, we will no doubt see a flood of response, analysis, and critiques of the first budget delivered by a minority government in more than two decades. Stay tuned.

Full details of the 2005 Federal Budget can be found at:
http://www.fin.gc.ca/budtoce/2005/budliste.htm