TAXES.CA - The Canadian Tax and RRSP Homepage TAXES.CA - Your source for tax information in Canada
Canadian Tax BlogDirectory of Canadian Tax ProfessionalsCanada Tax and RRSP Information
Canadian Tax Blog

October 2007 Archives

October 23, 2007

Shopping for lower taxes and less government regulation

There was a time, not very long ago, when finance ministers were known for challenging wooly economic thinking to improve the economic wellbeing of Canadians. Paul Martin successfully battled the deficit by rallying Canadians to support the Liberal government’s cost cutting measures. Michael Wilson was even more daring: as Conservative finance minister he abolished the old and highly inefficient manufacturers’ sales tax (MST) and replaced it with the – albeit hated – GST.

And Jim Flaherty? Well, he is hoping a meeting with the Retail Council of Canada will pressure merchants to lower prices to reflect our strong loonie. There is nothing wrong with a finance minister looking out for consumers. Yet, Mr. Flaherty has a much larger responsibility to Canadians than suggesting, as he has done, the reason domestic prices for goods and services do not match those in the United States is retailer gouging.

Minister Flaherty is well aware the strength of a currency is only one factor that determines price. Others include the tax bite, government regulations, minimum wages, tariff barriers and labour laws. The Canadian economy has more costly regulations and higher taxes and until this is changed Canadians cannot expect price parity with the U.S., which has a more dynamic, lower taxed, less regulated and therefore less costly market.

And yet for many years proponents of higher taxes and more red tape have argued the Canadian economy can absorb these costs without any economic pain. Today, dollar parity reveals the truth – somebody pays an economic price and it is the Canadian consumer.

Since finance ministers have no direct control over the dollar – or for that matter retail prices – Mr. Flaherty should concentrate on the policies he can influence as a way to help businesses adjust to Canada’s new economic environment. As such, the finance minister ought to explain the country cannot have radically higher minimum wages, higher business taxes and more costly regulations and expect prices to be the same on both sides of the border. It is simply an economic impossibility. After that is said, he should go about tackling these problems.

In order for our domestic market to offer the prices consumers obviously want, the federal government must take the lead to make the economy more productive. Of course, Ottawa cannot do it alone. It is a job for the federal government as well as provincial governments, which set minimum wages and determine labour laws, taxes and regulations. Even so, the federal finance minister can act to improve market efficiency with tax reform and lower taxes.

Mr. Flaherty’s demand for lower retail prices would be strengthened if he were to first lead by example. A good place to start is reforming Employment Insurance (EI) payroll taxes in the November budget update. Like other business inputs, payroll taxes are paid by manufacturers and retailers but they are passed on to, and paid, by consumers. Lower EI taxes will help retailers cut their costs and also benefit the exporting manufacturing sector, which is facing tough international competition. The Conservative government should act quickly to lower and harmonize employer premiums with those of employees. The tax savings will flow to consumers.

Thankfully, the Conservative government’s recent throne speech signaled its focus on targeting tax relief is over and Ottawa will soon enact broad-based tax cuts. Given the size of the federal surplus, which was $13.2-billion in 2005, $14.2-billion in 2006 and is on track to top $20-billion this year, Finance Minister Flaherty has an opportunity to combine intelligent and dramatic tax reform with significant tax relief.

Fat surpluses mean tax reform need not feed Canadians an unwanted new tax as former finance minister Wilson did when the MST was replaced. But it is the finance minister’s job to help retailers adjust when weaknesses are found in the economy. The Canadian market is not as vibrant or as competitive as it could or should be and government policy is part of the problem. Let’s get on with fixing it. For this to happen, Mr. Flaherty will first need to propose solutions. If he does, he will find taxpayers and retailers listening.

John Williamson
Federal Director
Canadian Taxpayers Federation

Posted by John Williamson, Canadian Taxpayers Federation [permalink]

October 17, 2007

Get Ready for Lower Taxes – Government Listening to Canadians

Conservative Government Outlines Fresh New Priorities

EDMONTON: The Canadian Taxpayers Federation (CTF) reacted to today’s speech from the throne, opening the Second session of the 39th Parliament.

“Today’s throne speech marks a significant step by the government towards lower taxes. Canadians can look forward to another one point cut to the GST as well as broad, multi-year tax relief for individuals, families and businesses,” said CTF federal director John Williamson. “The Conservative government has heard the demands of Canadians for tax relief and signaled today it will act accordingly by reducing its tax bite.”

“They must be serious given the throne speech announcement was made on primetime national television. We call on government MPs to ensure income taxes come down in short order,” said Mr. Williamson. “It’s pretty simple really: surplus dollars should be returned to taxpayers.”

On the Kyoto Protocol – Some Clearheaded Thinking:

“It’s fitting it was in the Senate, Canada’s place of sober second thought, that the federal government announced it will not meet its Kyoto targets,” observed Williamson. “Implementing the international agreement requires Canada to reduce average carbon dioxide emissions to 6 per cent below 1990 levels starting in 2008. Because the country’s output of greenhouse gases has increased by nearly 33 per cent above its target, draconian cuts in energy output are needed in short order. It cannot be done and Ottawa has finally acknowledged that fact. The Conservatives should be commended for being forthright with Canadian taxpayers. Moreover, they should be applauded for not wasting tax dollars on this scheme.”

This is What Democracy Looks Like – Elected Senator Appointed to the Red Chamber:

Senate reform advocate Bert Brown was finally appointed to the Senate, becoming its second ever elected member. Senator Brown won his second provincial Senate election in 2004 in the province of Alberta. “The Conservative government’s decision to appoint Bert Brown is a message to provincial governments. If provinces want their citizens to be fully represented in the upper chamber they need simply to consult voters in province-wide elections,” concluded Williamson. “Senator Brown’s appointment makes it clear Prime Minister Harper is prepared to heed the advice of voters by appointing their pick to the Senate.”

John Williamson
Federal Director
Canadian Taxpayers Federation

Posted by John Williamson, Canadian Taxpayers Federation [permalink]

October 2, 2007

Canadian Chamber joins Save-the-GST Club

One of the surprising outcomes of the Canadian dollar reaching parity with the U.S. greenback is a renewed attack on reducing the GST a second point. The Canadian Chamber of Commerce last month called on the Conservative government to break its election promise to cut the GST to 5% and instead lower business taxes. The normally somber chamber of commerce has joined the “Save the GST Club.”

Perrin Beatty, the group’s new president, is worried our high flying loonie makes it tougher for Canadian manufacturers to compete internationally. It is a legitimate concern – an increase to business costs vis-à-vis our competitors will squeeze sales and impact manufacturers. His solution: “I would like to see the government put a priority on cutting costs of doing business across the Canada-U.S. border.” He favours accelerating Ottawa’s tax-reduction plan, but “not the GST.”

Mr. Beatty is wrong to link corporate tax relief to scuttling the next GST reduction.

First, both can be done when Ottawa is swimming is cash. The federal surplus was $13.2-billion two years ago, $14.2-billion last year, and has already topped $7.8-billion only four months into the current fiscal year. The federal government has ample room to reduce taxes. It should do so.

Second, Ottawa has a spending problem not a revenue problem. Why does the chamber think it better policy to limit or swap tax relief rather than reign in spending? Even if Ottawa was not accumulating surplus atop of surplus, the objective should be on reducing federal expenditures, which have already increased by a staggering $24.4-billion under Conservative rule.

Does Mr. Beatty think it wise to grow the size of the federal government by 14%? Or is the chamber simply unwilling to make the tougher public case that expenditure growth and the high tax rates that fuel spending is the real roadblock to cutting the cost of doing business, not a measly one point GST cut? It would be a mistake to limit the scope of tax relief for even higher spending levels.

Third, public opinion matters and Mr. Beatty’s idea to cancel another GST cut reinforces the view the business lobby is willing to trade away personal tax gains for its own tax cut. Tax relief should not be restricted to corporate Canada. Business and individuals are overtaxed and should pay less tax. If Mr. Beatty remains concerned Ottawa does not have the fiscal capacity to lower business taxes further, he ought to instead focus on scrapping business subsidies, something Canadians know as corporate welfare.

Since the Conservatives were elected 20 months ago, every argument has been floated to discredit lowering the GST. It is not a “smart tax cut.” It does not help the poor. Now, dollar parity means Ottawa cannot cut this tax. Canadians aren’t having any of it. They understand the surplus means they are overtaxed. As such, many taxpayers are in agreement with Milton Friedman’s maxim that any tax cut, any time, is a good thing.

Mr. Beatty’s chamber of commerce illustrates the problem of lobbyist and elite opinion-makers casually tossing aside important campaign promises. Voters expect key commitments to carry some weight. Most believe it is essential for politicians to keep their word.

Politicians that do not can face significant trouble – if not outright hostility – from voters in the subsequent election. Just look at Premier Dalton McGuinty. Four years ago he told Ontario voters, “I won’t cut taxes, but I won’t raise them either.” Today, they remember this broken promise and Mr. McGuinty is struggling to win a second mandate.

The Harper government has already upset some investors by taxing income trusts. The about-face will certainly cause his party to lose votes in the next federal election. Imagine the firestorm of protest if the Conservatives broke a promise that benefited all Canadian consumers.

Mr. Beatty’s policy proposal is neither necessary nor viable. Politicians should not break their words, and the Canadian Chamber of Commerce should not ask them to.

John Williamson
Federal Director
Canadian Taxpayers Federation

Posted by John Williamson, Canadian Taxpayers Federation [permalink]

Copyright 2005-19 TAXES.CA  |  IMPOTS.CA | About Us  |  File Your Taxes  |  Privacy Policy  |  Terms of Use  |  Contact Us