Itís never too early to start drafting Budget 2004

Ottawa - Tuesday, March 4, 2003 - by: Walter Robinson, Federal Director, Canadian Taxpayers Federation


Many Canadians would simply like to forget Budget 2003 given its runaway program spending and reliance on optimistic economic growth projections. It seems they have found company in federal Finance Minister John Manley.



tax gap

Less than 48 hours after bringing down his Ďbigger government is better governmentí budget ó the likes of which we havenít seen since the days of Trudeau ó Mr. Manley was telling a Toronto business audience that our growing tax gap vis-à-vis the United States warranted attention.




While pundits have questioned the consistency ó not to mention the motivations ó of the Finance Minister in this apparent course correction after tabling a spending binge budget, what is important here is that we have leading federal politician who seems to realize that high personal income taxes are problematic for a variety of reasons.




In terms of the next round of tax cuts, the ideal place to start would be to raise the basic personal exemption from its current level of $7,756 to $15,000 in five years, or less. Why $15,000 you may ask? Simply stated, $15,000 is roughly the average amount earned (before taxes) by a minimum wage employee.




Why do we tax these people who are just entering the workforce, considered working poor, or just looking to earn a few extra bucks to make ends meet? The importance of this question becomes self-evident when one considers that we recycle a good deal of the taxes paid by minimum wage workers back to them in the form of GST credits and other tax benefit schemes.




Hereís a novel idea: Instead of taxing almost half their earnings (at 16%) and creating jobs for tax bureaucrats to recycle this same money back to them in the form of quarterly entitlement cheques, why not simply raise the basic personal exemption and leave more ó if not all ó of this money on their paycheques so low-wage earners can have the dignity of better providing for themselves on a daily, weekly and monthly basis?



1/2 million

Canadian Taxpayers Federation calculations peg the maximum cost of raising the basic personal exemption to $8,000 at $602 million and if the spousal exemption (currently at $6,586) is also hiked to $8,000, the total impact would equate to $1.3 billion. A move to hike the basic personal exemption to $10,000 would cost $5.5 billion and combined with an equivalent increase in the spousal exemption would result in a $7.2 billion impact ó removing almost 588,000 Canadians from the tax rolls.




Getting to the target basic personal exemption amount of $15,000 would represent a $17.8 billion maximum impact on the public treasury or a $22 billion hit (read: tax cut) if the spousal exemption is increased to $15,000 as well. This would remove over 2.1 million Canadians from the tax rolls. Spread over five years, it would be relatively easy to allocate $4.4 billion annually to bump the basic personal exemption to $15,000.




From a fiscal perspective this is eminently affordable. From a social justice perspective, providing tax relief for all Canadians but most specifically lower-income Canadians is very compelling. Similar to the federal governments move to re-index the tax system to inflation ó a nation campaign led by the Canadian Taxpayers Federation ó thereby ending bracket creep, raising the basic personal exemption blends good fiscal policy with great social policy.




The recent Bush tax cut plan ensures that a family of four earning $40,000 or less will pay no federal income tax. A similar Canadian family starts to pay taxes at $27,000. Raising our basic personal and spousal exemption is really not a question of choice, itís an absolute necessity. And itís never too early to start preparing for Budget 2004.

Walter Robinson
Federal Director



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