Canadian Budget Keeps Taxes On Hold

by Mike Godfrey, Tax-News.com, Washington

24 March 2011

Canadian taxes are set to remain low as the government pursues a return to balanced budgets and focuses on securing the country's economic recovery, said Finance Minister Jim Flaherty on Budget day.

Released on March 22 and titled the "Next Phase of Canada's Action Plan," the Budget set out what the government has called a low tax plan for jobs and growth, designed to keep the government on track to return to balanced budgets in the medium-term and "foster the right conditions for long-term economic prosperity". According to Flaherty, the return to budgetary balance is the cornerstone of the "Next Phase." The government intends to keep taxes low, focus increasingly on controlling government spending, support job creation, and reduce regulatory pressure on businesses through the Red Tape Reduction Commission. It will also engage in targeted investment in projects of national importance and seek to maintain Canada's brand as a good place to invest. Among the measures announced were the creation of a temporary Hiring Credit for Small Businesses, to encourage additional hiring in the sector, and the extension of the accelerated capital cost allowance rate for investment in processing machinery and equipment, for two years.

Flaherty said the Budget will build on the plan set out in 2010 for budgetary balance, which, he argues, is on track to generate savings of CAD17.6bn (USD18bn) over the next five years. This year, the government expects to generate more than CAD500m in ongoing savings from the 2010 round of strategic reviews. The deficit is projected to be more than 25% lower in 2010-11 than in 2009-10 and Flaherty stated that it is expected to reduce still further in 2011-12, by 25% again. To ensure efficiency, the government will close loopholes in the tax system and launch a one year Strategic and Operating Review of department spending across the whole of government in 2011-12.

In addition, Flaherty addressed the criticisms that have been levelled at the government for their handling of the economic crisis, which, in particular, has focused on the decision to implement tax cuts. He said that these cuts had been introduced in order to stimulate the economy and that, as a result, "Canada is emerging from the global recession as one of the world's top-performing advanced economies." Flaherty stressed that the government will not succumb to Opposition demands to impose tax increases, as he believes such a strategy would lead to continuing deficits and higher taxes for all Canadians. Instead, his message is "we will keep taxes low, to keep creating jobs for Canadians".

Flaherty also released the figures from the latest fiscal monitor, which showed an overall narrowing of the budgetary deficit during the first three quarters of the current fiscal year. The deficit stood at CAD27.7bn during April, 2010 to January, 2011, down from CAD39.6bn for the same period in 2009-10. In addition, revenues were up by CAD12.2bn, or 6.9%. According to the government, over CAD13bn of the deficit is attributable to actions taken under the Economic Action Plan, including tax reductions, Employment Insurance related measures, and infrastructure funding, with Flaherty saying during his Budget speech that "Canadians understand that a temporary deficit was necessary to limit the impact of the global recession" in the country.

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