Tuesday, October 30, 2007

Tories didn't get an election but still come out ahead

This is from the National Post. The minimum tax rate was raised by Harper to 15.5 per cent. Now it is put back to 15. Big gift for those at the lowest tax bracket. However the corporate tax rate will go from 22% to 15% by 2012.
The Liberals come out looking as if they are wimps, as they are. However, polls show the Tories actually going down in support at just 33% or so. Maybe they should be happy that the Liberals are wimps.

Ivison: Tories didn't get an election but still came out ahead
Here's hoping they didn't give out too much, too soon

John Ivison
National Post

Tuesday, October 30, 2007

You knew the moment that Jim Flaherty appeared in the National Press Theatre yesterday, grinning like a Jack O'Lantern, that he'd be handing out more than peanut butter pumpkins. The Finance Minister was seeking to banish the ghost of Halloween past, when he announced his decision to tax income trusts, by distributing cash like candy in a pre-election giveaway.

While his claim that the government is "keeping its promises" may stick in the craw of income trust investors, this time the Conservatives were as good as their word, living up to a campaign pledge to cut the GST by another one percentage point.

Liberal leader St├ęphane Dion decided that bringing down the government, just as it was handing back $10-billion a year to Canadians, would make him look like the grumpy neighbour who puts a "No Halloween" sign in the window, so he quickly dampened expectations of an election.

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

From Stephen Harper's point of view, this mini-budget will have achieved its objective, even though it has failed to provoke Mr. Dion into taking a stand. Every time the Liberal leader turns the other cheek when challenged by the Prime Minister, he plays into the Conservative narrative that he is "not a leader."

It had the added advantage of giving the government the chance to offload some of the bags of cash that have been cluttering up the federal Treasury. Over the next six years, the government will forgo $34-billion in GST revenue, a further $14-billion in corporate income tax revenue and $11-billion in personal income tax receipts (the lowest band has been reduced retroactively from 15.5% to 15% and the basic personal exemption
raised marginally).

No one is going to get rich. One economist estimated the first GST cut saved the average family $13 a month. Department of Finance figures suggest a two-earner family with two children, bringing in $60,000, would save $363 a year, rising to $427 for families with total income of $150,000 as a result of yesterday's income tax cuts. Not a king's ransom but it will buy you a 20-inch flat-panel LCD TV. And while economists might not like giant TVs, voters really, really do.

Neither do economists have much time for the GST cut, which has been panned universally as doing nothing for Canada's productivity problems. The government yesterday moved to counter Mr. Dion's claims that even the federal Finance Department would prefer not to cut the sales tax, by making deeper than expected cuts to corporate income tax -- a reduction to 15% by 2012 from 22% today. "This is a substantial shot of adrenalin for all Canadian businesses," said Mr. Flaherty.

He will now attempt to persuade those provinces that have not harmonized their sales tax with the GST to make that move in order to reach his stated target of a combined corporate tax rate of 25% (GST is not charged on capital equipment and machinery, so harmonization by provinces like Ontario
and British Columbia would have the effect of a tax cut).

The Finance Minister is betting that some of this medicine begins to work -- that the GST cut and personal income tax reductions help keep the cash registers ringing; that the business tax cuts start to encourage investment -- since he painted a far from rosy picture going forward. Challenges ranging from a strong Canadian dollar, escalating house prices, weakening export markets and competition from emerging economies all suggest economic and fiscal fundamentals "as solid as the Canadian Shield" may be starting to soften.

The Conservatives' enthusiasm for an early election is not unrelated to concerns that there are economic storm clouds on the horizon. Mr. Flaherty's concerns will be shared by the rest of the nation tonight -- the hope that we haven't given away too much candy, too early.

National Post

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