The Conservative government announced a long-term plan Thursday for further personal tax cuts and debt paydown as part of a strategy it hopes will win it another mandate.

In an economic statement delivered to the House of Commons finance committee, Finance Minister Jim Flaherty said the government will continue to cut income taxes and will reduce the GST by another percentage point, to five per cent, not later than 2011.

Jim Flaherty delivers the economic statement to the House of Commons finance committee on Thursday.
(CBC)

Flaherty also said the government will reduce taxes on savings, including on capital gains, but was not more specific on timing or details. 

The finance minister said the added tax relief — which he said could amount to $22 billion over the next six years — would be in addition to the $20 billion in personal tax breaks unveiled in his May 2006 budget.

Some of the tax relief will come from the "Tax Fairness Plan" Flaherty announced Oct. 31, when he brought in pension income splitting for seniors as of the 2007 tax year. Further savings will come from lower employment insurance premiums, which go down four per cent as of Jan. 1.

He also announced a "working income tax benefit" to help lower- and moderate-income Canadians. Flaherty said the specifics of that measure would be spelled out in his 2007 budget.

Flaherty also set a goal of eliminating the "total government net debt" by 2021. But that prompted criticism from Liberal finance critic John McCallum, who said it was a term "only a handful of economists in the OECD have ever heard of."

Canada's federal debt now stands at $481.5 billion. Net debt, on the other hand, involves a calculation that includes all federal and provincial government debt, minus government assets like the Canada Pension Plan.    

Figures from the economic update show that the government is now projecting the 2006-07 budget surplus will be $7.2 billion, double the $3.6 billion projected in the May budget.

Subtracting $3 billion set aside for debt reduction this year (and each subsequent year) would leave a planning surplus of $4.2 billion for 2006-07.

Inflation target extended

All future surpluses will be applied to the federal debt, Flaherty said.  

"Less debt means less interest means lower taxes," Flaherty said, promising that all interest savings from lowering the federal debt would be applied to personal income tax cuts.

The government is planning to reduce the debt-to-GDP ratio to 25 per cent by 2012-13, a year earlier than previously scheduled. 

NDP Leader Jack Layton said the government was "reckless" for putting too much emphasis on debt reduction.

"They're just simply saying, 'We are going to pay down the mortgage unbelievably fast. It doesn't matter if people are sick…. We are going to focus single-mindedly on reducing taxes and debt.' And that's not a balanced approach," he said.

Flaherty also announced a five-year extension of the current inflation target the Bank of Canada has used since 1991 — keeping the inflation target at two per cent, midway between a desired range of one to three per cent.

There was no mention of expanding income splitting to all Canadians. Flaherty has said the government was looking at that possibility.

Ontario Finance Minister Greg Sorbara said the economic statement lacked specifics.

"What I don't see — and this disappoints me — is any detail on anything except tax cuts and debt reduction," Sorbara said.

"There are no specifics on how they're going to invest in infrastructure. There are no specifics on how they're going to address the fiscal imbalance."