Feds cut GST, slash personal income taxes

CTV.ca News Staff
October 30, 2007 10:38 PM ET

Finance Minister Jim Flaherty has announced a reduction of the GST to five per cent, and major cuts to personal income taxes and corporate tax rates, in a fiscal fall update that resembled a full-fledged budget.

The total tax cuts represent about $60 billion in savings over the next five years, taking advantage of a federal surplus expected to reach $11.6 billion this fiscal year.

"Like the North Star, we are a bright light for others to follow," said Flaherty. "Canada has emerged as a shining example in an economic universe of rapid change and uncertainty. We are leading the way with our tax cuts, our debt reduction, our focused and responsible spending."

The Conservatives had promised to lower the consumption tax to five per cent in their 2006 election platform. The GST cut will be effective Jan. 1, 2008.

Other highlights include:

• An increase in the basic personal amount exemption to $9,600 from $8,929, retroactive to Jan. 1, 2007;
• Two years later, on Jan. 1, 2009, the basic personal amount exemption will be increased to $10,100;
• Reducing small business income tax to 11 per cent by 2008;
• $10 billion in federal debt relief; and
• The lowest personal income tax rate moves to 15 per cent from 15.5 per cent, effective Jan. 1 2007, undoing a change made in the first Conservative budget.

The government will also cut corporate tax rates by one percentage point in 2008. Further cuts will occur each year at a rate of one percentage point per year, bringing corporate tax rates down to 15 per cent by 2012 from 22 per cent today.

Corporate taxes will fall by one third between 2007 and 2012. According to the government, this will make Canada's corporate taxes the lowest among major industrialized nations.

"Taxes haven't been this low since Lester Pearson was prime minister," said Flaherty. "This is an achievement we can all be proud of."

The plan will be put to a confidence vote on Wednesday, putting an election trigger in the hands of the opposition parties.

Reaction

Both the Bloc Quebecois and NDP have said they will not support the government's plan.

NDP Leader Jack Layton said the fiscal update promised little that would help impoverished Canadians.

"It was an opportunity to close the widening prosperity gap. Instead, it widens that gap," said Layton.

He added that the proposals will give "$14 billion to the big banks and oil companies, who frankly don't need our money, instead of making investments in our communities."

Liberal Leader Stephane Dion said Tuesday his party will endorse the fiscal update -- avoiding an election -- but was critical of the GST cut.

"It's a big mistake," he said. "We will choose our time when we will decide to put this government down -- it will not be tomorrow."

On Monday, he had said a GST cut would not be an effective way to give Canadians tax relief.

"Compared with income tax cuts, a GST cut does nothing to improve our competitiveness in the world economy and does little to improve the fairness of our tax system, improve our productivity and move our economy forward," Dion said in a statement.

Liberal Finance Critic John McCallum said that aside from the GST cut, there were two significant measures in the fiscal update that his party agreed with.

"We certainly like the significant corporate tax cuts," he told CTV's Mike Duffy Live. "And the Conservatives had hiked income tax and now they're bringing it back down to where it was under the Liberals, so we can't object to that."

But he said that the fiscal update was too unbalanced, focusing too little on investments in health care, the environment and ending poverty.

Don Drummond, chief economist for TD Bank, said the GST cut will have a direct and immediate impact on Canadians.

"Well, if you think of an average consumer, a family spending about $30,000 a year, it would be $300 into their pocket," said Drummond.

Flaherty delivered the fiscal update in the National Press Theatre, instead of in the House of Commons as he had wanted, because the NDP didn't give the needed unanimous consent.

Past fiscal updates have been presented in front of the finance committee, and the finance minister then answered questions from opposition MPs.

With files from CTV's David Akin in Ottawa and The Canadian Press