Canadian Tax Cuts Hang In Balance As Government Loses No Confidence Vote

by Mike Godfrey, Tax-News.com, Washington

30 November 2005

Canada's three main opposition parties on Monday won a no-confidence vote against the minority Liberal Party government of Prime Minister Paul Martin, which had recently pledged a package of income tax cuts, claiming that his administration had lost the "moral authority" to govern following a financial corruption scandal.

The government's loss of the no-confidence vote will mean that all 308 seats in the House of Commons will be contested in an unusual winter election campaign, which will likely see voters braving freezing temperatures to cast their votes in a poll in late January.

The opposition parties are hoping to cash in on public anger over the misuse use of funds earmarked for a national unity program in Qubec.

The Liberal government had been teetering on the brink for some time, especially after losing the support of the New Democratic Party, and seeing the writing on the wall, Finance Minister Ralph Goodale earlier this month announced a supplementary budget that restores a previous pledge to cut corporate taxes and promises to lower the tax burden on the individual, a move that many commentators interpreted as a bid to retain power with populist tax cuts.

Goodale's tax package pledged to cut the general corporate tax rate by 2 per cent to 19 per cent by 2010, eliminate the corporate surtax and the federal capital tax for all corporations by 2006, two years earlier than originally planned, reduce the lowest personal income tax rate from 16 per cent to 15 per cent, effective January 1, 2005, with subsequent reductions of 1 percentage point to each of the two middle rates by 2010, and immediately increase the basic personal amount — the amount of income that all Canadians can earn tax-free — by $500, effective January 1, 2005.

It is unclear what the fate of these tax cut proposals will be if the Liberals are voted out of office, although the Conservative Party is in favour of tax cuts.

Recent polls have suggested that the Liberals have a slender lead, ahead of the Conservatives and the New Democrats, which initially opposed plans to cut corporate tax.

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