Kudos to Jim Flaherty for delivering a package of sweeping broad-based tax cuts. It wasn't perfect, of course, and the finance minister has more work ahead of him. His chief task in the New Year is to lessen the income tax load paid by individuals and families. Still, the Conservatives took a big step forward by returning surplus dollars to Canadian taxpayers and reducing Ottawa's tax bite.

What is important about last week's mini-budget is its philosophical underpinnings. The tax relief is broad-based; it is meaningful; and finally it is accountable because it fulfilled a key campaign promise.

Most economists will agree it is better to reduce income taxes before lowering the GST, but of the five priorities Stephen Harper presented to Canadian voters in the last election trimming the GST by two points was the most well-known. Thus, Prime Minister Harper would be damned by the media and opposition for cutting it and damned by voters if he didn't. He made the right choice - voters want promises made in opposition to be kept when a party is elected to govern.

The reduction is also important because it is a sizable tax cut. Reducing the GST by one point leaves $5-billion in consumers' hands. In the last 18 months, the finance minister has chopped the hated tax by two points. That's $10-billion a year staying in the pockets of Canadians. Moreover, it is a progressive tax cut because it benefits taxpayers with low incomes the most. Ask any economist: the poor spend proportionally more of their income on goods and services than middle- and upper-income earners.

It was on personal and business income taxes that the government got it right by delivering broad-based tax relief. The lowest personal income tax rate will drop retroactively to 15% from 15.5% and the basic personal exemption rises by $671. In 2007, this will save the average taxpayer $239 and the typical two-earner household $478. It is not a significant amount, but a welcome change. Until now Minister Flaherty's policy of providing boutique tax cuts, which benefited some and not all taxpayers, was complicating the tax code, driving up compliance costs and forcing taxpayers to jump through bureaucratic hoops to receive tax relief.

Mr. Flaherty reserved his boldest policy with an across-the-board cut to the general business tax rate. It will fall to 15 per cent in 2012 from today's rate of 22.12 per cent. Given our high-flying loonie and tough business environment, the reduction is welcome by companies and especially workers, since businesses move elsewhere when taxes become excessive, but the unemployed usually cannot. The reduction will also help seniors depending on investment pension income, improve Canada's competitive position and help ensure companies create good jobs here in Canada, not in foreign countries. And it is not just about keeping jobs here - those industrialized countries with lower business taxes also have higher wages for workers. (Something the NDP should think about.)

Mr. Flaherty's economic update is hopefully the first act of two acts. Act two - the 2008 budget - should focus on reducing personal income tax rates. The Liberals say their preference is to cut income taxes over a consumption tax reduction. Taxpayers hope the Opposition will continue to push the government to lower personal income taxes.

According to the Organisation for Economic Co-operation and Development (OECD) and even the federal finance department, Canada's personal income tax burden is the highest of the G-7 nations. The French and Italians pay less personal income tax than do Canadians. To correct this imbalance there are several options for Mr. Flaherty to consider. The guiding principle should be if you pay taxes, you will get tax relief. That is to say relief will come as a proportion of what is overpaid to Ottawa.

The Conservatives could move to lower tax rates up and down the income ladder with particular emphasis on the top two rates of 29% and 26%, perhaps by eliminating one altogether. Here is another solid proposal: the government could chop the two middles rates of 26% and 22% a point each and raise the income threshold at which the top rate of 29% begins to apply to $200,000.

Whose tax suggestion is this In fact, it comes from the Liberal Party. It was part of the 2005 Economic and Fiscal Update, tabled by the Liberal government in Parliament, and was the tax policy the Grits campaigned on in the last election. Stéphane Dion's Liberals would have a hard time voting against their own tax proposal if Minister Flaherty were to enact it in the next budget. While Liberals might squirm, it would be a good tax cut for overtaxed Canadians. The Conservative government should not let authorship of policy impede personal income tax relief. The goal is to lower income taxes and very few taxpayers will complain if it means implementing the Liberal's old plan under a Conservative banner.