I would like to thank members of the committee for this opportunity to bring the Canadian Taxpayers Federation's perspectives to your pre-budget deliberations. Once again the federal government is facing a growing "surplus." Big surprise: high taxes have Ottawa swimming in excess tax revenues. It is worth remembering that this is not a surplus resulting from spending restraint, but rather one that is the result of structural over-taxation.

The Canadian Taxpayers Federation is urging this committee and all Parliamentarians to make the following three priorities central in this year's federal budget:
• Meaningful reduction and elimination of wasteful spending;
• Broadly-based and fair tax cuts; and
• Legislated and planned debt reduction.

The federal government's surplus for the last fiscal year was $13.2-billion, up significantly from both the $8-billion forecast by the finance minister in the May budget and the original $4-billion projection reported in the 2005 budget. The surplus money will be used to reduce Canada's debt. One reason for the larger surplus is that program spending was reduced last year by $1.1-billion versus the previous fiscal year. Finance Minister Jim Flaherty and Treasury Board President John Baird also identified budget savings totaling $2-billion over the next two years. The CTF applauds the government for embarking on streamlining of program spending.

The spending cuts are welcome, but more reductions are necessary particularly when Ottawa spends an eye-popping $26-billion a year on grants and contributions. A $1-billion trim is approximately half of one per cent of Ottawa's program spending. In future years the federal government must ensure program spending is kept down and does not gallop ahead. As such, the Prime Minster's commitment to limit expenditure growth to a maximum annual amount of inflation plus population growth must be observed.

That we need and can afford tax cuts is obvious given multi-year and multi-billion dollar surpluses. Budget 2006 fulfilled the government's election promise to immediately lower the GST by one point – a positive step – and offer a variety of targeted tax cuts to benefit some, but certainly not all, taxpayers. Where the budget was regressive was in raising the first income tax rate from 15 per cent, which is the rate Canadians paid in 2005, to 15.25 per cent this year. Unfortunately, the tax will jump again in 2007 to 15.5 per cent.

Last year, we called on this committee to recommend that both the basic personal and spousal exemptions be raised to $15,000. In fact, the 2005 economic update outlined an accelerated timetable for increasing the BPE to $10,000 and the spousal exemption to $8,500. Regrettably the 2006 budget revoked this schedule. As a result, Canadians are paying more income tax today than would otherwise be the case although the introduction of the employment credit mostly offsets the increase.

This year we are pressing members to peg the two exemptions at $15,000 in four years. This will save all taxpayers $1,100 a year. In the context of growing surpluses we are confident members will see this proposal's merit.

It is not sufficient – or responsible – for parliamentarians to only discuss cutting taxes for low- and modest-income Canadians. According to the OECD and even Canada's finance department, our personal income tax burden remains the highest of the G-7 nations. In fact, this standing has not changed in almost a decade. Broadly-based tax relief is necessary to ensure all income earners benefit from lower taxes.

The Canadian Taxpayers Federation is therefore advancing a "3 and 3" plan whereby the top two personal income tax rates are reduced by 3 per cent – phased-in over three years – from 29%-to-26% and 26%-to-23%.

Many said the government's 2000 to 2004 tax relief measures would dramatically reduce expected revenues. But they did not. I quote then-Finance Minister Ralph Goodale, "The revenue growth we are now seeing is of a permanent and structural nature." This should come as no surprise, tax cuts strengthen the economy and result in more Canadians working and paying taxes. Until the department of finance reforms its modeling to include the stimulative consequences of cutting taxes, Ottawa will continue to underestimate its annual surplus by $5-to-$6-billion a year.

And one last word on taxes, specifically about the Employment Insurance payroll taxes. For years Canadians heard Opposition Conservative MPs lampooning the previous government for keeping rates higher than necessary to fund the EI program, a practice criticized by no less an authority than Canada's auditor-general. The tax was rightly labeled a job-killer. Will the EI tax be lowered? Taxpayers will be watching and comparing promises made in opposition with the actions of the new government.

Lastly debt relief: The new Conservative government and previous Liberal government should be commended for paying down $81.4-billion of Canada's national debt over the last nine years. This progress has resulted in annual savings on debt interest payments of over $4-billion a year. Nonetheless Canada will spent $35-billion to service the federal debt this year, which amounts to a daily interest payment of $95-million. Paying the interest on Canada's national debt is the federal government's single largest expenditure. Taxpayers have long advocated for moving from debt repayment by accident to debt elimination by design.

The CTF recommends an annual budget line devoted to debt repayment, beginning with 1 per cent in 2007/08, and rising to 5 per cent of annual revenues. If our good fortune and good fiscal management holds, our half a trillion dollar debt could be paid off in a generation, saving billions in annual interest payments. It could be done even faster if the federal government began the sale and divestiture of Crown assets, including the Canada Mortgage and Housing Corporation. With the national debt standing at $481.5-billion, Canada cannot afford to not take debt repayment seriously.

The bottom line: Ottawa should collect in taxes only what is needed to fund its spending priorities. Annual surpluses represent over-taxation by government and the money should go back to taxpayers in the form of lower taxes. Taxpayers will consider the 2007 Budget a failure if it does not offer Canadians broad-based income tax cuts.

Thank you.

By: John Williamson
Posted: October 16, 2006
Topic: Federal

Contact the regional director Gregory Thomas for further information.

Type: Related

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