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Magical mystery tax cuts

By John Williamson
web posted August 27, 2007

Stephen HarperIt is no surprise to Canadians that politicians routinely exaggerate accomplishments and overlook inconsistencies. Even so, a mid-July press release from the Conservative Party boasting of "almost $41 billion in tax relief over three years for individuals, families and businesses" deserves scrutiny. Particularly since Prime Minister Stephen Harper cited the upbeat tax cut number in early August to journalists while touring the Maritimes. The problem for taxpayers is the amount is not correct and is overstated by at least $8.8-billion.

An examination of the '06 and '07 budgets reveal the three-year tax reductions total $32-billion, not the $41-billion cited by Conservative lawmakers. Three tricks were used to arrive at the larger -- and more impressive -- figure. The Conservatives magically credit themselves $500-million for enacting measures announced in the 2005 Liberal budget; they include an income supplement program for the working poor worth $1.2-billion as a tax cut instead of properly classifying it as an expenditure; and mysteriously calculate the 2006 budget's half point personal income tax increase as a multi-billion-dollar tax reduction.

There are three good reasons to rebuke the government for its embellishment. Truth in budgeting is a concern for all taxpayers regardless of partisan stripes, and $8.8-billion is an enormous exaggeration of the government's tax relief package. If Canadians cannot trust what politicians tell them about tax and spending levels, their faith in government and its officials will fade. This is never a good thing in a representative democracy. In fact, the overall tax burden is decreasing, but not to the extent the Conservatives would like Canadians to believe.

Second, Prime Minister Harper has said he is hesitant to offer further tax relief. His ambivalence was revealed when he recently explained to reporters he would very much like to announce a big tax cut, but cannot because the Conservatives will not risk running a deficit. He tried to dress up timid leadership as being prudent when the government continues to amass another sizable surplus. Two years ago it was $13.2-billion and last year $9.2-billion. The 2007 budget forecast the surplus at $3.3-billion this year. Yet in July, the finance department reported the budgetary surplus had already hit $3.5-billion only two months into the fiscal year. If Mr. Harper wants to boast of a $41-billion tax cut, his government will first need to deliver one.

Third, the government's tax relief is adequate, but not great. Canadians hear more talk than action from the Conservatives. Take Jim Flaherty: the finance minister claims a deep commitment to reduce taxes. Yet Mr. Flaherty's tax relief record is second to Paul Martin's. The former Liberal finance minister implemented broad-based personal and business income tax cuts in 2000, which exceed Mr. Flaherty's total.

Minister Flaherty has instead offered a series of boutique tax cuts that benefit some, but not all taxpayers. As a result, he has complicated the tax code, kept marginal tax rates high, and done very little to improve Canada's competitiveness or the investment climate. In July, the C.D. Howe Institute said Ottawa should rethink its policy of micro tax breaks for specific groups because "the accumulation of targeted tax relief measures will have a significant fiscal cost, which could be better used to finance broad rate reductions. Tax rate reductions encourage greater work effort, investment and risk-taking without governments putting themselves in the position of picking winners from losers, a task at which they rarely succeed."

By targeting tax relief rather than lowering income taxes paid by all Canadians, the governing Conservatives are squandering an opportunity to strengthen the economy. By exaggerating the size of the tax relief, Prime Minister Harper is likely hoping an impressive sounding figure will boost poll numbers. Yet voters are shrewd and can often sense when a fast one is being pulled on them. This is especially true when taxpayers compare the tax relief dribbling into their pockets with the political "tax cut" rhetoric.

In March, 2004, then-Opposition leader Harper dismissed the Liberals for spending wildly and not reducing taxes. "There's more to good financial management than just balancing a budget at excessive spending levels," he said.

Call it Stephen Harper's magical, mystery transformation. ESR

John Williamson is the Federal Director of the Canadian Taxpayers Federation.


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