Canadian Budget Inceases Spending, Tinkers With Taxes

by Mike Godfrey, Tax-News.com, New York

20 February 2003

As he predicted last week, Canada's Finance Minister John Manley has brought in a budget which substantially increases spending, while making only minor adjustments to the burden of taxation.

The government expects a surplus of around $18 billion for this fiscal year and the next, and will spend an extra C$14bn this year and next, half of it going to healthcare. The environment and the military are also major beneficiaries under the budget.

The main tax measure was a commitment to phase out over five years the widely detested business capital tax. "This is a tax that hits businesses even when they have tough years," Mr Manley said. The budget also cut employment insurance premiums and included some minor tax breaks for small businesses.

The country's robust growth (3.3% this year and 3.5% next year) allowed the Finance Minister to promise balanced budgets for the next three years, despite the extra spending.

'Clearly meeting the priorities out there is not leaving a lot of room for tax cuts,' the Finance Minister said last week, although he confirmed that the government remained committed to the existing five-year C$100bn tax-cut plan which will reduce both corporate and personal taxes. The measures, which form part of a five year plan announced in the 2000 budget, cut the federal corporate tax rate from 25% to 23% from January 1, 2003, with a further reduction to 21% planned for 2004.

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