Canadian Liberals Set Out Tax Plans

by Mike Godfrey, Tax-News.com, Washington

07 April 2011

Canada's main opposition party has launched a manifesto targeted at the middle class family vote, proposing to put "Canadian families at the centre of our economic policies", paid for by a headline-grabbing pledge to revert corporate tax rates to 2010 levels.

The Liberal party's election platform is designed to persuade electors to cast their votes in its direction at the federal election on May 2. Its target audience is clear from the title chosen: "Your Family, Your Future, Your Canada," and it is promoted as "a plan for a stronger Canada." Navdeep Bains, chair of platform development, has stressed that: "Liberals believe that if families are stronger our economy will prosper". Party leader Michael Ignatieff has pledged that the family-friendly changes proposed in the platform can be paid for by cancelling what he calls the "unnecessary and unaffordable tax cuts for the largest corporations," and reversing certain spending cuts.

If successful, the Liberals would make a permanent Green Renovation Tax Credit available for home improvements yielding environmental benefits, worth up to CAD13,500 (USD14,000) to the family concerned, and costing the Revenue an estimated CAD400m. Family carers are also to benefit from a Family Care Tax Benefit of up to CAD1,350 per year, to help low and middle income family caregivers on incomes under CAD106,000 manage their costs. The Canada Pension Plan would also gradually be expanded, with a Liberal government bringing in a voluntary Secure Retirement Option, allowing Canadians to save a tax deductible 5-10% on their pay in a secure retirement fund.

Concessions have also been offered to "boost investment and job creation in small innovative start up businesses" in key sectors. An Innovation and Productivity Tax Credit would grant Canadian investors a 15% tax credit for investments in small, early stage start ups. Further, a Youth Hiring Incentive has been proposed, which would allow small and medium sized businesses to pay no employment insurance premiums for any Canadian youths they hire. There would be no increase in general sales tax, personal income tax, or small business tax rates.

According to the platform, the Liberal approach to fiscal responsibility contains three pillars: deficit reduction, competitive and affordable tax rates, and spending discipline. Ignatieff intends to "free up billions for the priorities of middle class families" through a reversal of government reductions in the headline rate of corporation tax. The rate was reduced to 16.5% on January 1, 2011, and is set to decrease still further to 15% from January, 2012. The Liberal party has been consistently critical of these changes, arguing that they are not affordable - the latest figures included in the platform estimate the cost of reduction at around CAD5-6bn per year. Instead of proceeding with the cut, the Liberals intend to return the rate to its 2010 level, at 18%.

The party argues that this rate was "very competitive," as it stood 25% lower than that of the USA. Consequently, according to the platform, "using borrowed money to cut it further is not a prudent policy". This change would yield over CAD5bn within the first two years of the plan, rising to nearly CAD6bn within four years, argue the Liberals.

The Liberals have also outlined their intention to set a "firm and realistic" deficit target, aiming for a figure of 1% of GDP within two years of the party taking office. It will then set new, near-term targets each year until the deficit is eliminated. The party would restore a two year budgeting framework to increase transparency and make steady, measurable progress in deficit reduction. That progress will be driven by "rolling near term targets that are firm and achievable".

The Liberals' economic platform has, unsurprisingly, been rubbished by Prime Minister Stephen Harper. "Canadian families cannot afford the high spending, high-tax agenda Michael Ignatieff released in his platform," he said.

"In the first week of the election campaign alone, Michael Ignatieff promised $4 billion in new annual permanent spending. Now he's promising to spend another $4 billion. In addition, since becoming Liberal leader Michael Ignatieff has made a number of costly promises. How will Michael Ignatieff pay for his spending priorities? By raising taxes," Harper said.

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