Finance Minister Jim Flaherty has tabled a motion that calls for $60 billion in personal and corporate tax cuts over the next five years, including a further cut in the GST to five per cent, effective Jan. 1.

News of the tax cuts came in an economic statement delivered Tuesday afternoon by Flaherty. Normally, the statement contains little more than an update on the government's fiscal position. Not this time.

Highlights of economic statement

GST cut one percentage point to 5%, effective Jan. 1, 2008 Personal income tax cut retroactive to Jan. 1, 2007, cutting lowest marginal tax rate to 15 per cent from 15.5% Jump in basic personal exemption to $9,600, retroactive to Jan. 1, 2007, increasing to $10,100 in 2009 $10 billion in federal debt paydown One percentage point cut in corporate tax to 19.5% in 2008 Reduction in corporate tax rate to 15 per cent by 2012 Small business income tax reduced to 11% by 2008 Total tax cuts of $60 billion over 5 years

In addition to cutting the GST by another percentage point, the Conservatives are proposing to cut personal income taxes retroactive to Jan. 1, 2007. The lowest marginal tax rate would fall to 15 per cent from 15.5 per cent. That represents a rollback of a rate hike implemented by the Conservatives last year.

As well, Ottawa is proposing an almost $700 jump in the basic personal tax exemption to $9,600, also retroactive to Jan. 1, 2007. That would increase to $10,100 in 2009. The basic personal exemption is the amount of money Canadians can earn before paying tax.

"The individual tax cuts will mean money in Canadians' pockets, as soon as they file their income tax returns for 2007," Flaherty said in a news conference following his statement.  

The government estimates the personal tax cuts will total $45 billion through 2012.

"Taxes haven't been this low since Lester Pearson was prime minister," Flaherty said. "This is an achievement we can all be proud of."

Finance Department documents reveal that the country's treasury is swimming in money. Finance minister Jim Flaherty now projects the 2007-08 surplus at $11.6 billion, before the debt paydown of $10 billion.
(Tom Hanson/The Canadian Press)

The government is also proposing to pay down the federal debt by $10 billion this year.

The government estimates that as a result of its tax changes, the 2008 tax savings will be:

• Almost $180 for the average family earning between $15,000 and $30,000 a year.
• Almost $400 for the average family earning between between $45,000 and $60,000 a year.
• Just over $600 for the average family earning between $80,000 and $100,000 a year.

Corporate tax cuts total $14.1B 

Corporate taxes will also be cut — by $14.1 billion over the next five years.

The corporate income tax rate drops by an additional percentage point to 19.5 per cent in 2008, falling in steps to 15 per cent by 2012. By that time, Canada will have the lowest corporate tax rate among the major industrialized economies, the government said.

The scheduled cut in the small business income tax rate to 11 per cent will be brought forward to Jan. 1, 2008, from 2009.

Dion says Liberals will not vote against motion

By unveiling specific tax measures that will require the approval of the House of Commons, the minority Conservatives once again put the country on election watch.

A vote on the motion enabling the Tories to make the tax changes will come at 3:15 p.m. ET Wednesday. The Conservatives need the support of one other opposition party, or the government will fall. However, an imminent election looked unlikely after Liberal Leader Stéphane Dion said late Tuesday that the Liberals would not vote against the motion. The Bloc Québécois and the NDP said they will not support the motion.

There's little argument about whether there is financial room to cut taxes. The treasury appears to be bulging with cash. Finance Department documents show that even with the tax cuts announced Tuesday, the country will still run an underlying budget surplus of $11.6 billion in the current fiscal year. Subtract the $10 billion debt paydown and the net surplus falls to $1.6 billion.

Many economists have argued that broader, deeper income tax cut would be better for the economy than a GST cut, which costs $5.5 billion a year. The GST was cut from seven per cent to six per cent in mid-2006. The Harper government has long promised to further reduce the tax to five per cent.

The economic statement comes one day before the first anniversary of the government's controversial announcement on Halloween last year to bring in a tax on income trusts. The move, which reversed an earlier campaign pledge to leave trusts untaxed, led to a big selloff in the trust sector that cost investors billions of dollars.