Posted on 10/30/2007 9:07:54 PM PDT by Clive
OTTAWA - The minority Conservative government rolled out a retroactive income-tax cut Tuesday while pledging to slash the GST to five per cent next year.
The fall economic update turned into a mini-budget, promising $60 billion in tax relief for Canadians and corporations over the next five years - including $3.5 billion in retroactive income-tax cuts this year alone - as the government larded the nine-page document with potential election sweets.
"These are historic tax reductions, they are very bold, particularly on the corporate side," said Flaherty.
But the finance minister insisted he hasn't jeopardized the government's pledge to keep the books balanced, although he hinted the Conservatives will not be introducing major spending increases in the spring budget.
In fact, he said there will be enough money left over after the tax cuts to pay down the national debt by $10 billion this fiscal year.
"The cupboard isn't bare, we're still in surplus," he said. "And I don't expect any lavish spending programs."
Flaherty said he expects government revenues this fiscal year to total $12 billion more than was projected in March's budget.
The hurried release of the fall update - the government hadn't even secured a venue when it was announced Monday - raises speculation that Prime Minister Stephen Harper was hoping to trigger an election by announcing a GST cut, which would draw the ire of the Liberals, and by proposing corporate tax reductions, which the NDP vehemently opposes.
But despite both measures, only NDP leader Jack Layton and Bloc Quebecois's Gilles Duceppe said their members would vote against the mini-budget when it is placed before the House of Commons on Wednesday.
Dion said his party would not vote against the mini-budget despite calling the GST a "big mistake" that will eat up about $34 billion of the total $60 billion in tax cuts.
He said the money could have been better used on investments, and corporate and personal cuts that would stimulate savings and investments and help the Canadian economy.
"It's a big mistake," he said. "We will choose our time when we will decide to put this government down - it will not be tomorrow."
The tax cuts make it difficult for the opposition to gang up against the government because the reductions will likely prove popular with ordinary Canadians and businesses, which gave an early thumbs up to Flaherty's proposals.
Harper has been pressing his advantage against a weakened Liberal party and the mini-budget further ratchets up the pressure.
The big item in Tuesday's announcement was the goods-and-services tax cut to five per cent effective Jan. 1, 2008, fulfilling early the government's campaign promise to lop two per cent off the then seven per cent GST by the end of their first mandate.
It will result in $12 billion in savings annually to consumers, and as Flaherty said: "Even Canadians who don't pay income tax pay GST."
As well, Flaherty resurrected a Liberal measure that would have reduced the lowest marginal tax rate, currently 15.5 per cent, to 15 per cent retroactive to last Jan. 1, and does one better.
The retroactivity of the cuts means Canadians will find themselves getting fatter refund cheques next spring when another window for a federal election will open for the Conservatives.
The Finance Department said these two measures will reduce personal income taxes for a typical two-income family of four earning $80,000 by more than $400, and for a single worker earning $40,000 by almost $225.
Altogether, the mini-budget says Canadians will experience tax savings of $60 billion over five years as a result of the changes.
"Taxes haven't been this low since Lester Pearson was prime minister," Flaherty said, without providing an explanation of that claim.
"This is an achievement we can all be proud of."
But there are lurking threats to Canada's prosperity, the finance minister warned.
There is some slackening in Canada's exports, a sagging U.S. economy due to a collapse in the American housing market and a challenge to Canada's manufacturing sector because of the rapid rise of the Canadian dollar.
The initial reaction from the business community was supportive, particularly of the pledge to reduce the corporate income tax by one percentage point starting next year and to accelerate future reductions that will take the rate to 15 per cent by 2012.
As well, Flaherty said the reduction on the small business tax to 11 per cent will go into effect next year instead of the planned 2009.
"This is a substantial shot of adrenalin for all Canadian businesses," the minister said. "These tax measures provide the right incentives at the right time."
Over the five-year period that runs to 2012-13, corporate cuts will total $14.1 billion; the GST tax will cost $34.2 billion and personal income-tax reductions will cost Ottawa $10.7 billion.
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Highlights of the federal mini-budget introduced Tuesday
OTTAWA - Highlights of the mini-budget introduced Tuesday by Finance Minister Jim Flaherty:
-GST cut one percentage point to five per cent, effective Jan. 1, 2008.
-Personal income-tax cut retroactive to Jan. 1, 2007, cutting lowest marginal tax rate to 15 per cent from 15.5 per cent.
-Jump in basic personal exemption to $9,600, retroactive to Jan. 1, 2007, increasing to $10,100 in 2009.
-$10 billion in federal debt relief.
-One percentage point cut in corporate tax to 19.5 per cent in 2008.
-Reduction in corporate tax rate to 15 per cent by 2012.
-Small business income tax reduced to 11 per cent by 2008.
-Total tax relief estimated at $60 billion over five years.
-Federal surplus to hit $11.6 billion in 2007-2008, even with the broad tax cuts accounted for; $10 billion of that to be used to pay down federal debt.
-Measures to be put to a confidence vote on Wednesday, potentially setting stage for election.
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Hillary, after her move to Montreal, announced “I’ve been a fan of the Canadiens since I was born, and I’m going to run for Prime Minister.”
Congratulations, Canada.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
How can you vote against tax cuts? With the conservatives ahead in the polls, it would only have served to ensure a majority government.
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