Harper government provoking an election?

[August1991]

The way I see it, the Conservatives have a winning hand here. Given the healthy surplus racked up last year, the proposed GST cut and corporate tax cut could be absorbed by another anticipated surplus. In other words, it looks like the country can afford it.

From the NP link above:

The government recorded a $13.8-billion surplus in the fiscal year 2006-07, and the budgetary surplus for the first quarter of the new year was $6.4-billion, leading to projections that the year-end surplus could be as high as $23-billion.

John Williamson, national director of the Canadian Taxpayers' Federation, said that if a $350 tax break were extended to Canada's 16 million taxpayers, it would cost the government $5.6-billion in forgone revenues.

"Since the average surplus has been $9.5-billion over the last 10 years, it is within the realm of what it is possible to do," he said.

The GST cut will cost the government an additional $5.4-billion.

The options open to Mr. Flaherty include reductions in the four bands of personal income tax, including the lowest band that was actually increased to 15.5% from 15% in the 2006 budget in order to pay for the first GST cut.

The Conservatives have also promised to reduce corporate income tax to 19% from 21% by 2010 -- a move that could be brought forward -- and they may also extend the accelerated write-off for manufacturing equipment beyond the current 2008 time frame.

Measures to harmonize retail sales taxes across the country, to make businesses more competitive, are also on the agenda but would likely not come in time to be announced in the fiscal update.

The Finance Department said yesterday that it is talking to provinces on the issue.

Last week, the National Post revealed that Mr. Flaherty plans to set up a $5-billion trust fund to help compensate the five provinces that do not have a harmonized sales tax for losses suffered during introduction of a harmonized tax system.

This is really good news if true. The provinces would go with harmonization if they got cash back. (Incidentally, the Quebec government collects the GST in Quebec and sends the revenue to Ottawa.) A GST cut of 1% would cost $5 billion and while it's a lousy idea in economic terms, it's a must-do in political terms.

Flaherty should bring forward the corporate tax cut and combine it with a personal income tax cut.

I think he should raise the basic personal exemption (BPE) from $9000 to $15000:

While the BPE has been indexed to inflation since 2000 – when bracket creep was elimiated – it is far below the amount it would have been if it were indexed to inflation since 1986 (when bracket creep was first implemented). If the BPE was indexed for inflation since the imposition of the income tax in 1917, it would now exceed $20,000. A low BPE and spousal exemption means Ottawa taxes people even at the bottom of the income scale. The CTF recommends the BPE be set at $15,000. Why should this personal tax exemption be set at this amount? It is approximately the amount earned in a year by a minimum wage worker.

By setting both the BPE and spousal exemption at $15,000, individuals earning $15,000 or less and families with incomes below $30,000 would no longer pay any federal income tax. All other taxpayers would save $941 a year; and the tax bill of a dual-income family would fall by $1,882 and that of single-income families by $2,091. Raising the spousal exemption to match the basic personal exemption will correct a current bias against single income families and improve tax fairness. Our tax system penalizes any family that opts to have one member stay at home. Without dwelling on the clear downgrading of work in the home that this implies, it is particularly unfair to those low-income families struggling to make ends meet as it can push parents into the workforce when they have a young family at home who needs them.

Raising the BPE and spousal exemption over a four year period will result in foregone revenues of $3.8-billion next fiscal year, and rise to $16.4-billion in 2010. Such a change will remove 1.7 million Canadians from the tax rolls and also benefit the remaining 14.1 million income taxpayers. Over 82 per cent of Canada’s 23 million tax filers earn $50,000 or less and 97 per cent make less than $100,000. Raising the BPE is a tax cut for all Canadians, albeit one that provides the greatest benefits to low- and middle-income earners. And spread over four years, it is relatively effortless for Ottawa to allocate the rising surplus and government savings to boost these two exemptions.

Canadian Taxpayers Federation

Frankly, if I were Flaherty, I'd skip the GST cut and go straight to this basic personal exemption tax cut combined with a corporate tax cut. The only hope that we have to cut government spending is to have a deficit since it makes it difficult to justify rising budgets. As long as there is a surplus, politicians will be tempted to spend it.

[Michael Bluth]

Frankly, if I were Flaherty, I'd skip the GST cut and go straight to this basic personal exemption tax cut combined with a corporate tax cut. The only hope that we have to cut government spending is to have a deficit since it makes it difficult to justify rising budgets. As long as there is a surplus, politicians will be tempted to spend it.

That jump in the BPE is hugely expensive.

In essence the CTF is saying that the Conservatives can't implement any other tax cuts, and still have to cut spending by $2.2 Billion.

A cut in the BPE would be a shrwed part of the new mini-budget. But not at the expense of any other tax cuts.

Perhaps Flaherty could begin by indexing the BPE.

[gc1765]

I think he should raise the basic personal exemption (BPE) from $9000 to $15000

Sounds great to me.

[capricorn]

They also said they would not vote against this tax cut and would push for even higher corporate and income tax cuts

O.K. So if the Liberals push for higher corporate and personal income tax cuts, does this mean they will vote against the Conservatives' proposal? If they table their preferred taxation approach would this not handcuff them in the sense they could not back down afterward regardless of the results of a vote on a mini budget or a federal election? In other words, would the Liberals then have to make this part of their policy platform? I would think so.

[jdobbin]

O.K. So if the Liberals push for higher corporate and personal income tax cuts, does this mean they will vote against the Conservatives' proposal? If they table their preferred taxation approach would this not handcuff them in the sense they could not back down afterward regardless of the results of a vote on a mini budget or a federal election? In other words, would the Liberals then have to make this part of their policy platform? I would think so.

I'm not even sure what we're looking for in the mini-budget. It could be just some general housekeeping stuff. As you pointed out in the link, the bureaucrats are saying they can't have everything ready by then. The Liberals are not going to vote down one tax item when there are several they do like.

[jdobbin]

Frankly, if I were Flaherty, I'd skip the GST cut and go straight to this basic personal exemption tax cut combined with a corporate tax cut. The only hope that we have to cut government spending is to have a deficit since it makes it difficult to justify rising budgets. As long as there is a surplus, politicians will be tempted to spend it.

I'd say that an income tax cut combined with spending cuts would be great if that is what the government chose to do. The GST cut just won't pass on the savings to taxpayers in the same way as an income tax cut would. I know that in my profession, we did not change our rates so buyers for our services didn't get a 1% savings. That happened in quite a few business areas. Savings were not passed on.

[capricorn]

Frankly, if I were Flaherty, I'd skip the GST cut and go straight to this basic personal exemption tax cut combined with a corporate tax cut. The only hope that we have to cut government spending is to have a deficit since it makes it difficult to justify rising budgets. As long as there is a surplus, politicians will be tempted to spend it.

The problem with foregoing a second GST cut is that the electorate has been conditioned to expect it and think it's the best thing since sliced bread. IMO that was a faux pas by the Conservatives. It would have been better not to announce a second GST cut and, then analyze the merits and repercussions of other taxation options. I'll concede it was a ploy to gain votes and it probably contributed to their victory.l

I totally agree we are better in a deficit situation. Expectations are consequently lowered then the smallest economic advancement is seen as a huge victory. As you say, you can't fight over funds that are non-existent.

[Michael Bluth]

The problem with foregoing a second GST cut is that the electorate has been conditioned to expect it and think it's the best thing since sliced bread. IMO that was a faux pas by the Conservatives. It would have been better not to announce a second GST cut and, then analyze the merits and repercussions of other taxation options. I'll concede it was a ploy to gain votes and it probably contributed to their victory.l

Hey, why don't the Liberals agree to defeat the Government over the second GST cut and fight an election on the issue?

[August1991]

The problem with foregoing a second GST cut is that the electorate has been conditioned to expect it and think it's the best thing since sliced bread. IMO that was a faux pas by the Conservatives. It would have been better not to announce a second GST cut and, then analyze the merits and repercussions of other taxation options. I'll concede it was a ploy to gain votes and it probably contributed to their victory.

The tax system exists in a political world so it is meaningless to discuss the perfect tax. (In a sense, if not for politics, the perfect tax would be no tax at all.)

The GST cut is part of Harper's political credibility and he'll have to do it. The GST is extremely visible and while it seems like only pennies, we see it everyday.

I totally agree we are better in a deficit situation. Expectations are consequently lowered then the smallest economic advancement is seen as a huge victory. As you say, you can't fight over funds that are non-existent.

Here too I'm not holding my breath for tax cuts leading to a budget deficit in this Parliament. Too many Canadians view a balanced budget and paying down the federal debt as "sound economic policy".

In any case, going with the topic of this thread, the Tories would want to introduce a mini-budget that would be rejected by the Liberals and yet would make a good campaign platform. IMV, sooner or later, Dion and Harper are going to butt horns.

The GST cut just won't pass on the savings to taxpayers in the same way as an income tax cut would. I know that in my profession, we did not change our rates so buyers for our services didn't get a 1% savings. That happened in quite a few business areas. Savings were not passed on.

The incidence of any tax is rarely obvious at all. In any case, because of the GST cut from 7% to 6%, it's clear that $5 billion less each year is going to the federal government and we all in varying degrees got to keep some of that cash. And politically, Harper promised and did something highly visible that the Liberals often promised but never did.

The Liberals from Chretien and Martin through Kinsella to McGuinty talk alot in stylish ways but it's all flash and no cash. Harper delivers.

Edited October 25, 2007 by August1991

[gc1765]

An interesting article from the globe and mail...

"The Conservative government's plan to trim the GST for a second time has been soundly rejected as a top tax-cutting priority by a large group of economists surveyed by The Globe and Mail.

All 20 economists said other tax cuts would be better for the country than trimming another percentage point from the goods and services tax, which represents more than $5-billion in revenue.

It's a remarkable show of unanimity on public policy, given that the responses were from organizations as diverse as the Fraser Institute, the Canadian Auto Workers, Canadian Manufacturers & Exporters, Bank of Montreal and the Halifax-based Atlantic Institute for Market Studies.

...

And most said point blank that the government's proposed GST cut is a bad move, one with a negligible effect on the economic health of the nation that does nothing to boost productivity."

Link

[jdobbin]

The incidence of any tax is rarely obvious at all. In any case, because of the GST cut from 7% to 6%, it's clear that $5 billion less each year is going to the federal government and we all in varying degrees got to keep some of that cash. And politically, Harper promised and did something highly visible that the Liberals often promised but never did.

The Liberals from Chretien and Martin through Kinsella to McGuinty talk alot in stylish ways but it's all flash and no cash. Harper delivers.

I'm afraid you are wrong. Go back and look at the Canadian Taxpayer's Federation site and see what they say about the Liberal tax cuts versus the Tory ones. In two years, they still haven't come close to that last Liberal budget.

[capricorn]

The GST cut is part of Harper's political credibility and he'll have to do it. The GST is extremely visible and while it seems like only pennies, we see it everyday.

The GST is a "universal" issue, if I may borrow from the Liberals' lexicon.

Yeah, on the GST, Harper has no choice but to deliver.

[gc1765]

Hey, why don't the Liberals agree to defeat the Government over the second GST cut and fight an election on the issue?

If this poll is at all accurate (and I'm not saying that it is), that might not be such a bad idea. As of this morning, 73% of respondents would prefer personal income tax cuts, and only 20% would prefer the GST cut, with the remaining 7% choosing corporate tax cuts.

Link

Would be nice to see the results of a more scientific poll...

Edited October 25, 2007 by gc1765

[Michael Bluth]

If this poll is at all accurate (and I'm not saying that it is), that might not be such a bad idea. As of this morning, 73% of respondents would prefer personal income tax cuts, and only 20% would prefer the GST cut, with the remaining 7% choosing corporate tax cuts.

Link

Would be nice to see the results of a more scientific poll...

Yeah, the wording of the poll leaves a little to be desired.

There will be personal tax cuts in the mini-budget. Just not as deep as some would argue for. The GST cut has to stay for practical purposes. Once it is done it will never be raised.

Does anybody remember that the GST as originally proposed by the PCs was supposed to be 9%? Don't see us ever going there.

[gc1765]

The GST cut has to stay for practical purposes.

Explain?

[Michael Bluth]

Explain?

It allows the government to finish the first set of five priorities before moving on to a new set of priorities.

It allows them to avoid calls of flip flopping and false promises. Nothing has changed. The same economists and special interest groups who opposed it then oppose it now.

Only a ditherer would change course on this promise. Say what you will, but Stephen is not a ditherer.

[old_bold&cold]

It does not matter what polls say. Harper is going to do both a GST cut and personal income tax cut. He will aslo probably address Corporate tax cuts as well. He has the surplus to do all of this and of course the political will from all parties to pass this without much chance of anyone taking a viable stand against any of it. Of course there will be cries that it is too little and wrong headed and such, but in the end it all will be passed and things will all be attributed to Harper as being the one who cut taxes and the GST, just as he promised he would do.

The liberals always promised things and never delivered and that is the baggage they themselves will have to bear. It is funny to see them thinking about trying to say they would offer deeper cuts etc. when it is obvious that they will not have to worry about keeping that promise as they will not be forming a government any time soon, and also with the fact taht they never seem to deliver on promises any way even when they were in power. So who would even give them the time of day, let alone listen to them now.

As most who really take an balanced view of all of this, they will find that Harper not only has governed as he said he would, but he also did all he could in a minority government to make sure his promises were kept. That in itself should show him to be an honourable man, and party leader. He has had a very productive run with his minority goverment, and he could only do this by governing in a way the people of Canada wanted. If he did not do this, his government would have fallen. Sure it is only as of late that he has been given a carde blanche by the Liberals, as they fear an election more then they fear passing things that they do not agree with. But that Diabolical Harper does what with this? Give the people Tax breaks, ooohh the horror of it all.

[gc1765]

It allows them to avoid calls of flip flopping and false promises. Nothing has changed. The same economists and special interest groups who opposed it then oppose it now.

Only a ditherer would change course on this promise. Say what you will, but Stephen is not a ditherer.

No, he's a man of principles who would put the economic interests of the country above cheap politics

[White Doors]

I'd say that an income tax cut combined with spending cuts would be great if that is what the government chose to do. The GST cut just won't pass on the savings to taxpayers in the same way as an income tax cut would. I know that in my profession, we did not change our rates so buyers for our services didn't get a 1% savings. That happened in quite a few business areas. Savings were not passed on.

Unless you always quoted your rates with taxes in you did not have to change your rates to pass the savings along. Unless what you are saying is that you did not change your register and it is still ringing up 7%? if so that is illegal.

[jdobbin]

Unless you always quoted your rates with taxes in you did not have to change your rates to pass the savings along. Unless what you are saying is that you did not change your register and it is still ringing up 7%? if so that is illegal.

Rates are quoted with taxes. I know few who passed on the savings to consumers. Most took it as an opportunity to increase their margins.

[White Doors]

They can afford to do both. It is not an either or situation here.

[Fortunata]

Say what you will, but Stephen is not a ditherer.

Is a ditherer worse than a liar, promise breaker, flip-flopper (choose your own word here)?

[capricorn]

If this poll is at all accurate (and I'm not saying that it is), that might not be such a bad idea. As of this morning, 73% of respondents would prefer personal income tax cuts, and only 20% would prefer the GST cut, with the remaining 7% choosing corporate tax cuts.

Link

Would be nice to see the results of a more scientific poll...

If I was asked to select between a GST cut and personal income tax cuts, no question I would pick personal tax cuts. Did the poll ask respondents whether they would prefer both tax reductions together? I bet not. Yet, that's what the Conservatives are offering.

[capricorn]

Does anybody remember that the GST as originally proposed by the PCs was supposed to be 9%? Don't see us ever going there.

Oh I remember all right. There was speculation at the time that the government's strategy was to suggest 9% then reduce the proposed rate to 7% to make it more palatable and acceptable to Canadians.

[Michael Bluth]

If I was asked to select between a GST cut and personal income tax cuts, no question I would pick personal tax cuts. Did the poll ask respondents whether they would prefer both tax reductions together? I bet not. Yet, that's what the Conservatives are offering.

You are correct sir.

But asking the question with the third option wouldn't have supported the big story in the Globe that day.