The Liberals plan to debate the issues of tax reduction and spending increases this fall, and until that time they are unable to commit to a clear critical path on the issue of tax reduction. And while they won't commit to clear answers as to how money will be committed, there were some specific directions that we can expect the current government to emphasize.

When the debates begin, the government has emphasized that reducing personal income tax will be its number one priority. It is clear that while all issues will be on the table, areas of broad tax reduction will most likely be emphasized over reduction and equalization of EI premiums and the GST. The government recognizes that the middle class has borne the brunt of taxation over the last decade, and is prepared to look there first when they move to reduce personal income taxes.

When asked about new spending, the message is clear. There are areas the government needs to invest in, and it will do so by focussing on a few key areas where it believes it can accomplish the most. Education, and in particular new skills and knowledge training, was suggested as one possible area where the federal government could play a leadership role.

With the upcoming debates, this is certainly a good time to get in touch with your local MPs to let them know where you think they should focus their policies!

 

"There would be tax relief tomorrow if there were 150 members of parliament who would vote for it. After all the discussing is done, the federal tax levels in this county come down to a vote on a certain night in the federal parliament usually connected with the budget. It will probably happen next February or March and I think the business people have a vested interest in making sure that the next election has at least 150 plus MPs in that parliament who will vote for genuine broad-based deep tax relief and that every candidate in every party ought to be asked point blank: are you a tax cutter or are you a spender."

Preston Manning has been calling for deep tax cuts for a long time, and he is seeing a strong shift in the attitudes of Canadians in favour of significant cuts. If elected, his party has a plan that would:

• Cut the capital gains tax in half;
• Reduce payroll taxes by $7 Billion;
• Reduce personal income taxes by increasing the personal and spousal exemptions; and
• Propose indexing the tax brackets to eliminate the bracket creep that pulls people into the higher tax levels even though their real income doesn't go up.

"The combination of all of those, if you work it through at the rates we're talking about, adds up to about a 25% reduction in personal tax over three years by the end of the third year."

As he explains, these cuts would be financed out of federal surpluses, with his plan including a $105 B a year federal spending program. Cutting taxes will put money back into the pockets of Canadians, which means more disposable income will be invested back into Canadian businesses.

"You need these dollars in the pockets of people themselves to spend in order to ensure that economic and social security goes up. It's just that they spend the dollars instead of government spending them all the time," said Manning.

As for Paul Martin's recent announcement of an upcoming program to cut taxes over five years, Manning is skeptical. As he explains, the Minister of Finance has had six opportunities in 6 budgets to reduce taxes, and ".. all he's ever done is increase them." Manning explains that the government collected $107 Billion when they took office in 1993, while this year they will collect $149 Billion.

"So when Martin talks about cutting taxes, who would believe him because they've never every done it in the past, and they've had the chance to do it," said Manning.

Where are the extra $42 Billion in tax revenues coming from? Here is an overview, as explained by Manning of how taxes have changed since the 1993 levels:

 

Tax:	Change in Revenues Collected:
Personal income taxes:	Up $23 Billion
Corporate taxes:	Up $11 Billion
GST:	Up $6 Billion
Bracket Creep:	"Up a couple of Billion more due to inflation, which the government loves because they don't need to announce it."

 

Manning sees the GST as one of the most hated taxes in the country, not only because of the revenue aspects of it, but also because of the paper burden connected with it.

"We have a long range proposal for the GST," explained Manning. "We would actually like to see it eliminated, and the revenue replaced by a flattened - and notice I say flattened not flat - because we would have flattened and simplified income tax system."

When asked about the issue of red-tape affecting small businesses, Manning explained that the key solution would be to eliminate some taxes altogether, cutting capital gains taxes in half, and simplifying personal income taxes.

"Even the personal income tax. It should be possible to simplify that by flattening the rates down to just maybe 2 rates and doing away with a lot of the loop-holes and credits that make the darn thing so complicated."

 

"I'm concerned that the Liberals are about to launch into massive spending like we saw in the 70s. In the 90's this simply doesn't make sense."

Scott Brison acts as the PC Party's Finance Critic, Revenue Canada Critic, Treasury Board Critic, and the Chairman of PC Party's Tax Task Force. When asked about his party's plans for tax cuts he stressed that the Task Force is working with non-partisan tax experts and business people from across the country to develop a set of recommendations for tax reduction and tax reform.

As for the final plan for reform the Task Force is still out, but Brison was able to highlight the areas they are investigating, and some of the key areas where he feels cuts are needed:

• Reduce EI premiums to $2 per $100 contribution;
• Capital gains tax reductions, which would raise the small business capital gains limit and break out capital gains tax so that long-term and compensatory gains would not be taxed at the same levels as short-term gains;
• Raise basic exemption levels and adjust middle tax bracket, create a full indexation of tax brackets, and eliminate the high income surtax;
• Increase allowable foreign content in RRSPs from 20% to 50%;
• Adjust business taxes so that they are more in line with taxes in other countries that are drawing talented Canadians away from Canada;
• Create an equalization program that will ensure areas that need economic growth the most, such as the Atlantic provinces, are not the areas with the highest taxes; and
• Focus government spending on areas where the government has expertise, while reducing government spending in areas where they are not best equipped to operate.

"There are ways that the government could save money and create opportunities in the high tech sector, with a more realistic assessment of what the private sector is capable of providing to the public delivery of services," explained Brison.

"For many small business owners during the operation of their business, the principal gains are achieved when they sell the business prior to retirement," explained Brison. "We have a capital gains tax regime in Canada that is twice as oppressive as in the US. Reducing capital gains tax would result in an unlocking of capital and help Canadian small business."

When it comes to the 'red-tape' issue, Brison has proposed an interesting solution: the red-tape budget. As he explained, the red-tape budget would mean that any new regulations proposed by bureaucrats would have to be costed 3 ways:

1. The cost for the government to implement;
2. The cost for the government to track and enforce; and
3. The cost for Canadians and businesses.

 
Under this new system, these costs of the new regulation would be weighted against the measurable benefits to Canadians, with new regulations being debated in the House of Commons similarly to how budgets are now debated. As Brison explained, this would force governments to make the same types of cost-benefit analysis that Canadian businesses make every day, and it would force governments to take into account the cost of compliance for regulations and compare those costs with the actual benefits to Canadians.

The bottom line for Brison and the PC Party of Canada is that Canada needs tax reform and tax reduction to stay competitive in an evolving world.

"High taxes, and an intrusive, distortionary tax system are costing Canadian jobs and reducing small business opportunities in Canada."

 

"The bottom line is that high taxes are not just killing jobs, they are killing the future by driving entrepreneurs and skilled professionals right out of the country." - Preston Manning

One issue that concerns both Preston Manning and Scott Brison is the "brain drain". Is the Canadian tax system driving skilled workers out of the country? Are small businesses feeling the effect of the "brain drain"? Or is it a Canadian myth? Watch for an article on this topic in an upcoming issue of CanadaOne! Sign-up for our free newsletter, What's On, to keep posted on the articles published every month.

Author Information

Julie King is the co-founder and publisher of CanadaOne.com®