Liberals commit to tax cuts as election looms

Last Updated: Monday, November 14, 2005 | 7:48 PM ET

CBC News

With Paul Martin's minority government facing the threat of defeat within days, Finance Minister Ralph Goodale has introduced a package that combines voter-friendly income tax cuts along with corporate tax cuts and new spending on education, immigration and trade.

Appearing in front of the House of Commons finance committee Monday, Goodale presented what the government insists on calling an "economic and fiscal update," though it contains the kind of spending commitments traditionally seen only in budgets.

They include:

Finance Minister Ralph Goodale prepares to deliver his fiscal update at the Commons Finance committee in Ottawa. (CP photo)

• An immediate $500 increase in the basic personal exemption, which leaves more money in the pocket of every Canadian taxpayer.
• An immediate drop of one percentage point in the lowest personal income tax rate, from 16 per cent to 15 per cent.
• A plan to restore corporate tax cuts dropped last spring as the price of NDP support in the House of Commons.
• A $2.75-billion boost in post-secondary education aid over the next five years, as well as a $1-billion higher education innovation fund and $2.1 billion more for university research funding.
• $3.5 billion more for workplace training programs.
• A promise of $1.3 billion more over five years to help immigrants settle in Canada.
• Just more than $1 billion over five years for trade supports.
• An extra $100 million over five years to help bring broadband internet service to remote communities across Canada.

The finance minister also promised to work with provincial and territorial governments to draft a new tax benefit to help the working poor, who often lose more in welfare benefits than they gain in pay when they take minimum-wage jobs.

Changes depend on politics

Finance Department officials say all the changes, even those labelled as "immediate," must be approved by parliamentary vote.

That means none will take effect without the good will of opposition party leaders who on Sunday pledged unanimously to bring down Prime Minister Martin's minority government as soon as possible.

A no-confidence motion could come as early as this week, triggering an election in late December or early January.

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The finance minister acknowledged none of this uncertainty in his speech, however.

He boasted that individual Canadians will save up to $325 on income taxes in the first year covered by the changes, seeing bigger refunds as early as next spring.

The documents show that a two-income family of four earning $60,000 would pay $499 less tax in 2006. But that's only if the measures outlined in the update are implemented.

Goodale's package would give $30 billion in tax relief while costing a total of $49.8 billion over the next five years. Of that, $39 billion is new spending that had not been previously announced.

But there should be plenty of money to pay for it, according to his documents.

Surplus forecasts turn rosier

Monday's update differed from past updates in relying on 16 private-sector assessments to come up with much more optimistic forecasts of future budget surpluses.

One year ago, for example, Goodale's last 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.

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Goodale attributed the rise in the 2005-06 numbers to "higher projected corporate and personal income tax receipts and lower public debt charges."

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In the past, the Liberals have come under attack from opposition politicians and lobby groups for underestimating their budget surpluses. Critics have accused Martin's government of doing so in order to dampen calls for more spending or quicker tax cuts.

A bill introduced in the House of Commons last month spells out how future surpluses must be spent, if they come in higher than the annual contingency reserve of $3 billion. The money will be split among tax relief, new program spending and reducing the national debt, which now stands at just under $500 billion.

In another announcement, Goodale said the government now aims to have a debt reduction target of 20 per cent of gross domestic product by 2020.

Goodale refers to 'red-ink' history

Goodale's speech began by reminding his listeners what "an economic basket-case" Canada was before Martin became finance minister when Jean Chrétien's government took over from the Conservatives in 1993.

"The federal budget had been in deficit for more than a quarter of a century, with red ink as far as the eye could see," Goodale's presentation said.

He contrasted that with the situation today. Canada has recorded eight straight surpluses, unique among Group of Seven countries, and is enjoying its lowest unemployment rate in 30 years.

The Canadian economy is projected to grow by 2.8 per cent this year, Goodale said, rising to 3.1 per cent in 2007.