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OTTAWA — Federal Finance Minister Jim Flaherty had a choice to make on where to dole out tax cuts in Monday's budget. He chose to focus on “hard-working families” – exactly the sort of family-oriented suburbanites the Tories hope will deliver the next election to them.
Rather than announcing another round of broad-based cuts, as the Conservative government did in its first budget last year, Mr. Flaherty's second go-round of tax reductions – a key plank in the party's political platform – promises new child tax credits, increased credits for families with a stay-at-home parent, more for seniors and a tax benefit program for the working poor.
“There were many personal tax relief options we could have pursued in this budget. We made a choice,” Mr. Flaherty said in the prepared text of his budget speech. “We chose to support hard-working families.”
In what could well be the minority government's last budget before the next federal election, the main beneficiaries of Mr. Flaherty's tax plan stand to be many of the Conservatives' target demographics for the next election: the lower-middle class, older Canadians, and suburban and rural families.
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The centre-piece of the tax reductions is a new $2,000 child tax credit – a credit against taxable income for each child under the age of 18, regardless of income level. The credit, which will cost the government $1.45-billion in foregone tax revenue, works out to an annual saving on the income tax bill of $310 per child for most Canadian parents. (Only the lowest-income Canadians, whose taxes will be reduced to zero by other tax credits, will see no benefit from the program.)
The budget also included an increase to the spousal credit available to couples with one primary wage earner, raising the credit for the dependent spouse to a maximum of $8,929 – the same amount as the primary wage earner's personal exemption. It will cost the government $270-million in foregone revenue in the current budget year to eliminate what Mr. Flaherty called “the marriage penalty” on single-earner families.
“It is good public policy to encourage commitment and marriage, not penalize it,” Mr. Flaherty said in the speech text. “That's what we're doing.”
The Tories also followed through on two previously announced tax cuts, including one – The Working Income Tax Benefit – that dates back to a 2005 promise from the former Liberal government. This plan, aimed at encouraging the working poor to stay in the work force rather than turn to social assistance, provides a tax credit equal to 20 per cent of each dollar earned in excess of $3,000 for low-wage earners, up to a maximum of $500 per individual or $1,000 per family. The government pegged the annual cost of the benefit at $550-million.
The government also followed through on its pledge, made at the time of its announcement of new taxes on income trusts last October, to increase age credits for seniors and allow senior couples to split their incomes on their individual tax filings, which effectively reduces the tax burden on the higher earner.
Conspicuously, the budget didn't include any tax cuts that would benefit all taxpayers – unlike last year, when the government cut the base income tax rate to 15.5 per cent from 16 per cent, reduced the goods and service tax by one percentage point and introduced a $1,000 tax credit for employment expenses.
Also absent was some form of relief on capital-gains taxes for investors, which the Tories promised in the last election. Many observers had anticipated at least partial breaks on capital gains taxes, especially in the aftermath of the government's decision last fall to phase in new taxes on income trusts, a popular income-generating vehicle for Canadian investors.
