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Corporate Canada: budget a win-win situation
Ottawa — Corporate Canada landed a major win Tuesday, as the new Conservative government's first budget featured greater-than-expected tax cuts and a range of other measures designed to boost the country's economic performance.
The budget, highlighted by a broad tax cuts for both corporations and consumers, measured spending increases, and money for productivity-enhancing spending such as education, followed a four-year period when federal spending jumped by an average of 8 per cent a year.
"The common denominator is prosperity," said Finance Minister Jim Flaherty. "To ensure our long-term prosperity, we need to increase our productivity."
Business groups said Mr. Flaherty's first budget was the most important for economic growth since 2000, when then-finance minister Paul Martin used a burgeoning surplus to unveil $100-billion in tax cuts.
Nancy Hughes Anthony, president of the Canadian Chamber of Commerce, said the Tory budget is "in a league" with its 2000 counterpart.
Perrin Beatty, chief executive officer of Canadian Manufacturers & Exporters, said Tuesday's budget was a pleasant surprise.
"This is encouraging — a better budget for business than we have seen in the last five years," said Mr. Beatty. "It includes measures that will have a real benefit for business."
Those measures included: — Eliminating the federal capital tax, which economists describe as among the most harmful of taxes, as of Jan. 1 of this year. That's two years ahead of schedule.
— Increasing the amount of small business income eligible for the 12 per cent tax rate to $400,000 from $300,000, as of Jan. 1, 2007.
— Chopping that tax rate to 11.5 per cent in 2008 and to 11 per cent in 2009, from 12 per cent. That's a reaffirmation of a Liberal promise.
— Cutting the general corporate income tax rate to 19 per cent, from 21 per cent, by Jan. 1, 2010.
— Eliminating the corporate surtax for all corporations as of Jan. 1, 2008. It had previously been eliminated only for small and medium-sized companies.
— A new tax credit for up to $2,000 for employers who hire and train apprentices.
— A new $1,000 grant for apprentices.
— A new $500 tax deduction for tradespeople for the cost of tools in excess of $1,000 that they must buy as a condition of their job.
The budget also included measures for consumers and employees. Many economists and companies argue such moves are important for the corporate sector because they make it easier to attract highly skilled employees and because they help boost the economy. Those measures include: — A new lowest personal income tax rate of 15.5 per cent. The Liberal government had lowered that rate to 15 per cent from 16 per cent in their fiscal update last fall.
— A new $1,000 tax credit for each employee.
— An increase in the amount that each Canadian can earn tax free for every year between 2005 and 2007. That includes the previously announced $500 increase.
— A reduction in the GST to 6 per cent, from 7 per cent, that will take effect July 1.
The government has also vowed to limit program spending increases to 5.4 per cent in 2006-07 and 4.1 per cent in the year after that. Both of those figures are less than the expected rate of growth for nominal gross domestic product — the key statistic that determines government revenue — and dramatic lower than the Liberals' spending increases in each of the last four years.
Mr. Flaherty also said that the 2005-06 federal surplus is now expected to be $8-billion, which will be used to pay down the government's massive debt. As it stands now, the government plans to pay down about $3-billion a year in ensuring years.
Craig Wright, chief economist at RBC Financial Group, said the budget took "steps in the right direction" towards improving Canada's competitiveness but that it could have gone even further. "Maybe small steps aren't enough right now."
Mr. Wright said the government could have done a lot more to boost the economy if it had used the $4.5-billion a year allocated on the 1 percentage point reduction of the GST on more effective and productive tax cuts. Although popular with voters, economists, the OECD, and even Finance Canada officials have said that the economy won't get as much bang for the buck from a GST cut, as it would from a cut to almost any other tax, particularly to corporate or personal income taxes.
Corporate Canada: budget a win-win situation
Ottawa — Corporate Canada landed a major win Tuesday, as the new Conservative government's first budget featured greater-than-expected tax cuts and a range of other measures designed to boost the country's economic performance.
The budget, highlighted by a broad tax cuts for both corporations and consumers, measured spending increases, and money for productivity-enhancing spending such as education, followed a four-year period when federal spending jumped by an average of 8 per cent a year.
"The common denominator is prosperity," said Finance Minister Jim Flaherty. "To ensure our long-term prosperity, we need to increase our productivity."
Business groups said Mr. Flaherty's first budget was the most important for economic growth since 2000, when then-finance minister Paul Martin used a burgeoning surplus to unveil $100-billion in tax cuts.
Nancy Hughes Anthony, president of the Canadian Chamber of Commerce, said the Tory budget is "in a league" with its 2000 counterpart.
Perrin Beatty, chief executive officer of Canadian Manufacturers & Exporters, said Tuesday's budget was a pleasant surprise.
"This is encouraging — a better budget for business than we have seen in the last five years," said Mr. Beatty. "It includes measures that will have a real benefit for business."
Those measures included: — Eliminating the federal capital tax, which economists describe as among the most harmful of taxes, as of Jan. 1 of this year. That's two years ahead of schedule.
— Increasing the amount of small business income eligible for the 12 per cent tax rate to $400,000 from $300,000, as of Jan. 1, 2007.
— Chopping that tax rate to 11.5 per cent in 2008 and to 11 per cent in 2009, from 12 per cent. That's a reaffirmation of a Liberal promise.
— Cutting the general corporate income tax rate to 19 per cent, from 21 per cent, by Jan. 1, 2010.
— Eliminating the corporate surtax for all corporations as of Jan. 1, 2008. It had previously been eliminated only for small and medium-sized companies.
— A new tax credit for up to $2,000 for employers who hire and train apprentices.
— A new $1,000 grant for apprentices.
— A new $500 tax deduction for tradespeople for the cost of tools in excess of $1,000 that they must buy as a condition of their job.
The budget also included measures for consumers and employees. Many economists and companies argue such moves are important for the corporate sector because they make it easier to attract highly skilled employees and because they help boost the economy. Those measures include: — A new lowest personal income tax rate of 15.5 per cent. The Liberal government had lowered that rate to 15 per cent from 16 per cent in their fiscal update last fall.
— A new $1,000 tax credit for each employee.
— An increase in the amount that each Canadian can earn tax free for every year between 2005 and 2007. That includes the previously announced $500 increase.
— A reduction in the GST to 6 per cent, from 7 per cent, that will take effect July 1.
The government has also vowed to limit program spending increases to 5.4 per cent in 2006-07 and 4.1 per cent in the year after that. Both of those figures are less than the expected rate of growth for nominal gross domestic product — the key statistic that determines government revenue — and dramatic lower than the Liberals' spending increases in each of the last four years.
Mr. Flaherty also said that the 2005-06 federal surplus is now expected to be $8-billion, which will be used to pay down the government's massive debt. As it stands now, the government plans to pay down about $3-billion a year in ensuring years.
Craig Wright, chief economist at RBC Financial Group, said the budget took "steps in the right direction" towards improving Canada's competitiveness but that it could have gone even further. "Maybe small steps aren't enough right now."
Mr. Wright said the government could have done a lot more to boost the economy if it had used the $4.5-billion a year allocated on the 1 percentage point reduction of the GST on more effective and productive tax cuts. Although popular with voters, economists, the OECD, and even Finance Canada officials have said that the economy won't get as much bang for the buck from a GST cut, as it would from a cut to almost any other tax, particularly to corporate or personal income taxes.
