Finance Minister Paul Martin is set to unveil a tax-cut promise worth more than $45-billion over five years in a budget that will include more tax reductions than new spending in every year, senior government sources say.
Faced with concerns over undisciplined Liberal spending, Mr. Martin is expected to stress the size of his personal income-tax cuts and the focused nature of spending increases when he releases his seventh budget on Feb. 28.
Sources say Mr. Martin will outline specific tax-cut measures covering the next two years, and spell out a broad strategy for the next three years. In total, the plan would reduce taxes by more than $45-billion over five years, so long as economic growth permits.
He will also make it clear that the government intends to devote more of its anticipated surplus to tax cuts than to new spending. In doing so, Mr. Martin will move away from the 50-50 formula under which the Liberals promised to allocate half of the surplus to spending and half to tax cuts and debt reduction over the course of their second mandate.
Mr. Martin forecast in the fall that the government would have $95-billion to allocate to debt reduction, tax cuts and new spending over the next five years. He will reserve $15-billion, or $3-billion a year, in a contingency fund that will go to debt reduction if not needed.
That leaves $80-billion to split between tax cuts and spending.
Royal Bank economist John McCallum said he would be pleased if the Liberals dedicate more than half of that $80-billion to tax cuts. "To me, that's quite a lot of tax cuts -- it's not huge in terms of what we pay but it would be significant," he said.
However, the Reform Party and the Progressive Conservatives -- backed by business lobbyists -- are urging the government to allocate virtually all of its looming surplus to tax cuts.
For next year, the minister is expected to cut personal income tax by $3-billion by reducing the middle tax bracket, raising the threshold at which the various three brackets kick in and increasing the value of credits such as the goods and service tax credit and the disability credit.
Next year's tax cuts will include more than $650-million to enrich the Child Tax Benefit and an already announced reduction in unemployment-insurance premiums, bringing the total to nearly $5-billion.
The minister is expected to begin the elimination of the 5-per-cent surtax that applies to people earning more than $65,000.
Mr. Martin also plans to boost spending by more than $4-billion over the $111.5-billion that was forecast for the 1999-2000 fiscal year. And Liberal strategists are worried that the furor over mismanagement in the Human Resources Department's grant programs could reduce public support for more federal spending.
The Liberal government has resisted calls from the provinces and health groups to substantially increase over the next few years the federal transfers that are provided to the provinces to support health care, postsecondary education and welfare.
Mr. Martin will announce a one-time transfer of up to $2.5-billion to the provinces for health care and education, and indicate the government will be prepared to make further contributions once Health Minister Allan Rock has completed his discussions with the provinces on health-care reform.
The Finance Minister is also expected to announce new funds for research, infrastructure, environment and defence. As well, there will be increased departmental spending for such programs as the Coast Guard, the RCMP, Immigration, and Health Canada's Health Protection Branch.
Walter Robinson, of the Canadian Taxpayers' Federation, said he is prepared to support Mr. Martin's proposed tax cuts, but he added that any reductions will be offset by increases in Canada Pension Plan premiums and the lack of inflation protection in the tax system.