SPRING TAX CUTS AS DEFICIT SHRINKS
$11-billion less
OTTAWA • The Harper government is gearing up for a bonanza tax-cut giveaway in its fall fiscal update that would see cheques landing on voters’ doorsteps next spring.
Mr. Harper said Thursday that his government is about to implement major promises from the past election campaign, likely to include incomesplitting for families with children and increased annual contributions for tax-free savings accounts to $10,000.
In addition, the Prime Minister revealed the federal government’s deficit in the year ended March 31, 2014, was $5.2-billion — dramatically lower than the $16.6-billion projected in the budget. He said the government expects a small shortfall in 2014-15.
The details will be revealed in a fall update, expected around Halloween. Sources said the level of activity inside government suggests a more comprehensive package of measures than the usual brief financial statement.
The expectation is that the fall update will include a budget implementation bill and specific tax measures.
The advantage of including the measures in the fiscal update, rather than in a spring budget, is that the tax cuts will be felt by voters in the spring — just months ahead of the next federal election.
The use of legislation will also put the opposition parties on the spot.
If they want to use the billions of dollars allocated by the Conservatives for tax cuts, they will have to vote against the government’s ways and means motion.
If they do so, they are likely to find themselves offside with voters who quite like the idea of tax cuts.
The better-than-expected financial picture means the Conservative government could have significantly more dollars to spend on tax breaks and other goodies for voters leading up to the federal election slated for October 2015.
Speaking to the Brampton and Mississauga Boards of Trade, Mr. Harper said the government is still on pace to return to surplus sometime in 2015 but is planning to run a small deficit in the current year.
The budget is projected to be in a $2.9-billion deficit in 2014-15 and a $6.4-billion surplus in 2015-16. “We continue to intend to run a small deficit this year before returning to surplus. We also intend, however, to move quickly to implement promises that we made to Canadians during the last election.”
The government promised to move on tax breaks once the budget was balanced.
It has pledged to introduce income-splitting for couples with children under 18 (sharing up to $50,000 of household income for tax purposes). The measure is estimated to cost the government $2.5-billion and has proven to be controversial, even among Conservatives.
Former federal finance minister, the late Jim Flaherty said income-splitting for families would be of no benefit to most Canadians.
One study suggested only 9% of Canadians would benefit by more than $500 a year.
Mr. Flaherty argued that the money would be better spent extending the universal childcare benefit to families with children over six years old.
Sources suggested Mr. Harper agreed with his finance minister but pressure from caucus persuaded him that the government had to honour its pledge on incomesplitting.
The Conservatives also promised to double the annual savings limit in tax-free savings accounts to $10,000 (costing government $30-million annually) once the government returns to surplus.
The Tories have also promised an adult tax fitness credit to cover up to $500 in registration fees for fitness activities (costing $275-million a year) and a doubling of the children’s fitness tax credit to $1,000 and making it refundable (at a cost of $130-million).
The better-than-expected deficit numbers have been attributed to savings made by Treasury Board president Tony Clement, who has cut direct program spending, introduced efficiencies and reduced backoffice expenditures.