News

The Harper government broke open Ottawa's swollen piggy bank yesterday to dole out nearly $60-billion in tax relief over six years, fulfilling a campaign pledge to cut the GST to 5 per cent and offering income tax breaks that Canadians will notice when they file returns next spring.

The tax-cut package was timed to distract Canadians from today's anniversary of the Conservative government's controversial income trust tax, and leave room for a pre-Christmas election if the opposition Liberals had defeated the Tories over the measures.

But Liberal Leader Stéphane Dion immediately said his party, which has been shaken by by-election losses and internal difficulties, would not oppose the tax-relief package, delaying an election until possibly the spring of 2008. The Tories are betting that their tax cuts from yesterday and this year's March budget will sweeten their electoral appeal to Canadians preparing their tax returns.

About 25 per cent of the tax relief is earmarked for businesses - hit hard by the rising dollar - and will make Canada's corporate tax rate the lowest among major industrialized economies by 2012.

"[This budget] brings the federal tax burden to its lowest level in nearly half a century," Finance Minister Jim Flaherty boasted. "We haven't seen taxes this low since Lester B. Pearson was prime minister."

The taxes and levies the government collects, as a percentage of economic output, will fall to 15.1 per cent by 2011-12. The last time it was lower was 1963-1964, when Mr. Pearson, a Liberal, was in office and the era of big government spending had yet to begin.

The tax relief, which the Tories say will remove 385,000 people from the income tax rolls, includes:

A reduction in the goods and services tax to 5 per cent from 6 per cent effective Jan. 1, 2008 - the second one-point reduction in two years;

An increase in the basic personal amount Canadians can earn before paying income taxes by about $670 to $9,600, retroactive to Jan. 1, plus a further increase to $10,100 in Jan. 1, 2009;

A 0.5-percentage-point cut in the lowest personal income tax bracket rate to 15 per cent retroactive to Jan. 1;

A cut of one percentage point in the general corporate income tax rate in January, 2008, plus an acceleration of a small-business rate reduction.

Mr. Dion said he disagreed with the GST cut, but backed the corporate and personal tax relief. "We will choose our time when we will decide to put this government down. It will not be tomorrow," he said, referring to a confidence vote in the Commons today on the mini-budget.

All three opposition parties would have to vote against the Tories to trigger an election. The Bloc Québécois and the NDP said they would oppose the measures. "It's taking the country in the wrong direction. ... It's a $14.5-billion gift to Corporate Canada," NDP Leader Jack Layton said. "Big banks and oil companies don't need more help right now."

Mr. Flaherty delivered the fall update in the National Press Theatre after the NDP opposed his bid to unveil it in the Commons rather than before a parliamentary committee as is traditional.

The Tories rushed out the update, giving reporters only a 30-minute embargoed preview of the documents in a lockup before they were made public at 4 p.m. EDT. This cut by about half a day the advance time given to journalists to analyze budgets in lockups.

Even after all these tax breaks, Ottawa is still headed for a surplus of $11.6-billion this fiscal year, thanks to a flood of corporate and personal tax revenue earned from the commodity price boom for resources such as oil and metals. The Tories said $10-billion of this will go to pay down debt.

The Conservatives' new fiscal plan nearly cleans out Ottawa's financial cupboard for the time being, leaving only $7.2-billion in total surpluses over the next three years, after $3-billion is set aside annually for debt reduction.

Mr. Flaherty rejected suggestions that the Tories are either hiding more cash for use in a spring budget or overspending and taking Ottawa too close to a deficit. "The cupboard isn't bare; we're still in surplus," he said. "[But] I don't expect any lavish spending programs."

The Tories have also effectively frustrated the Liberals as they plan an election platform. Spending most government revenue for several years out on politically popular tax cuts leaves Mr. Dion little room to propose alternatives.

Canadian Taxpayers Federation head John Williamson, a tax-cut advocate who applauded yesterday's levy relief, said he suspects the Tories are holding back more cash for a spring budget.

"Governments have underreported surpluses for the last decade, and there's no reason to believe they're any more accurate today. I suspect there'll be another pleasant surprise in the next budget," Mr. Williamson said.

The first GST cut

Impact of the first one-percentage-point cut in the GST, which took effect July 1, 2006:

Average savings

per Canadian

13.66 a month or $164 a year, based on a straight division of the revenue. "It's a pizza a month," Global Insight chief economist Dale Orr says.

Cost to government coffers

$5.4-billion a year

Total GST collected

per year

$30.1-billion estimated for 2007-2008

Impact on consumer

spending

Mr. Orr says: "The relationship between GST revenues and consumer expenditures reveals no significant evidence of stimulated consumer spending."

Do the tax cuts pay for themselves by driving up spending and generating enough extra tax revenue to cover the cost of the reduction? "A cut in almost any other kind of federal government tax would have been more effective in stimulating economic growth and would have resulted in it getting more of the lost revenue back," Mr. Orr says.