It will take years before the federal government can bring in the kind of historic tax reductions for ordinary Canadians that it delivered for businesses in October, Finance Minister Jim Flaherty said.

Finance Minister Jim Flaherty ponders a question during a year-end interview at his office in Ottawa on Monday.
(Fred Chartrand/Canadian Press)

In an interview with the Canadian Press in his 19th floor office in downtown Ottawa, the finance minister said he understands that Canadians expect a Conservative government to bring in "long-term change, long-term, broad-based tax reductions."

But while his Oct. 30 mini-budget set Canadian companies on track to be among the least taxed in the G7, reducing the corporate income tax to 15 per cent by 2012, it will take time for ordinary Canadians to see that degree of tax relief, he said. 

Flaherty said Canadians expect the Conservative government to bring in long-term, broad-based tax reductions.

"We've done it on the business side, we've done some on the personal income tax side, with more to be done," he said.

However, the finance minister acknowledged that won't be possible in 2008 because he does not expect the government to enjoy huge surpluses in the next few years, particularly after setting aside $10 billion for debt reduction during this fiscal year.

"The next couple of years are closer to the line, given the more moderate expectations with respect to economic growth," he explained. "But I still think we have the potential to do more on the personal income tax side … long-term."

Most forecasts show the Canadian economy slowing to more modest growth of between two and 2.5 per cent in 2008, in part because the expected slowdown in the United States economy next year will squeeze demand for everything from autos, auto parts, metals and minerals to oil, petrochemicals, coal and lumber produced in Canada.

With slowing Canadian growth and an expected drop in business profits, the federal treasury will likely see hundreds of millions and possibly billions of dollars in lower corporate and personal tax revenues.

For Ottawa, the key change on personal income taxes so far into the two-year government's term has been a reduction in the low income tax bracket from 15.5 per cent to 15 per cent, restoring a cut first introduced by the Liberal government of Paul Martin two years ago. The government has fulfilled its campaign pledge to cut the GST to five per cent from seven per cent, in stages, however.

No 'Band-Aid solutions' for manufacturing, forestry

While he offered few hints at what would be in his budget this spring, Flaherty said there would be no major rescue mission for the battered manufacturing and forestry sectors.

Any assistance that could come would be minor, he said, and in the area of help for retraining displaced workers and in research and development measures "to encourage increased acquisition of sophisticated technology to increase productivity."

"I'm not in favour of Band-Aid solutions that have a very short shelf-life," he explained, saying that people who believe the problems in the sectors are short-term and caused primarily by the strong dollar are just plain wrong.

"It's quite clear in forestry there is a longer-term restructuring needed. There's more competition in the world, some of the mills in Canada are too small, in some cases there has not been adequate investment in new technology. The appreciation of the Canadian dollar does not help, but all those things were there before."

In the auto sector, he said, one of Canada's main problems is that domestic assembly factories produce large, energy-inefficient vehicles such as trucks, SUVs and minivans at a time of low demand in the U.S., where more than three-quarters of Canadian production is exported.