Goodale Confident Corporate Tax Cuts Can Survive Political Deadlock

by Mike Godfrey, Tax-News.com, Washington

09 June 2005

Canada's Finance Minister Ralph Goodale has stated his intention to assure global financial leaders that the government will stick to its promise to cut corporate tax, despite being forced to abandon budget plans as a result of political pressure.

As Goodale prepared to leave for the United Kingdom to attend the G-8 summit, he conceded that the government was "plowing new ground" with respect to the tax cuts after an all-party finance committee rejected a proposal to present the proposals in a separate bill after the opposition NDP party blocked the budget.

Under the 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 will be removed whilst an extra C$4.6bn ($3.7bn) in spending on items such as low-income housing, the environment and foreign aid will be tacked on.

Consequently, the initial pledge to cut corporate tax to 19% from 21% by 2010 and remove the corporate surtax by 2008 now hangs in the balance.

Nevertheless, Goodale was able to fend off questions of whether the government will be able to carry through its tax cut commitments, asserting that there is "ample time" to reach an all-party agreement with the cuts not due to take effect until 2008.

However, the government's political meanderings over the corporate tax cut have angered the business community, which has been vocal in its opposition to the deal with the NDP.

Jim Westlake, Chair of the Board of the Canadian Chamber of Commerce, has 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," the Chamber noted in a letter issued to Goodale at its Board of Directors meeting in Montreal on Sunday.

"This politically motivated action showed a clear lack of planning and long-term strategic thinking on the part of the federal government," the letter warned.

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