Canadian Budget Survives Confidence Votes

by Mike Godfrey, Tax-News.com, Washington

20 June 2005

Canadian Prime Minister Paul Martin survived a series of crucial confidence votes in the House of Commons last week, meaning that the amended budget with corporate tax cuts and extra social spending will now probably go through.

The Liberals won votes on two budget appropriations bills unexpectedly easily by by 249-53 and 206-96.

Under a deal struck between the left-leaning NDP and the minority Liberal government in April, it was agreed that corporate tax cuts proposed in this year's budget would be removed whilst an extra C$4.6bn ($3.7bn) in spending on items such as low-income housing, the environment and foreign aid would be tacked on. But an all-party finance committee rejected the idea of presenting the corporate tax proposals in a separate bill.

As Finance Minister Goodale prepared to leave last week for the United Kingdom to attend the G-8 summit, he conceded that the government was "plowing new ground" with respect to the proposals to cut corporate tax to 19% from 21% by 2010 and remove the corporate surtax by 2008.

Hearings before the House of Commons' Standing Committee on Finance earlier in the month were fiercely lobbied by the opposing forces of left and right. Andrew Jackson, director of social and economic policy at the Canadian Labour Congress presented research claiming that large Canadian corporations used the generous tax cuts of recent years to stash larger amounts of money in offshore tax havens instead of delivering productive jobs-creating investments in Canada. "There has been a large and growing outflow to offshore financial centres (or tax havens), led by the financial sector which now has $72 billion invested in these centres," he said.

Jim Westlake, Chair of the Board of the Canadian Chamber of Commerce, stated that his members are "deeply worried" that the extra spending provisioned for in the revised budget will leave little or no room for the promised tax cuts. "Bill C-48, the budget amendment that fulfills the terms of the Liberal-NDP agreement at the expense of corporate tax rate cuts, was concluded quickly and with little effort to determine whether the new spending initiatives are effective in boosting productivity and fostering long-term economic growth," said the Chamber in a letter to Goodale.

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