Canada Day tax cuts could get mixed reaction from Canadians

TORONTO (CP) - As the country marks its birthday on July 1, the federal government will be implementing a broad series of tax cuts introduced in the 2006 federal budget. Some economic agencies call it a stepping stone towards further cuts, while others say its little more than a headache for the average Canadian.

The main focus of this weekend's changes, besides the much-touted GST cut, is to reduce personal income taxes.

On Saturday, the federal government will start providing a new tax credit on employment income of up to $500, which will double to $1,000 in January.

The amount that Canadians can earn without paying federal tax will increase, and will continue to rise for the two tax years.

However, the lowest personal tax rate will climb to 15.5 per cent from 15 per cent. The government said its goal is to remove 655,000 low-income Canadians from tax rolls altogether.

"That's what they're trying to do, but whether all the cuts reach that goal remains to be seen," said Clay Gillespie, vice-president of Rogers Group Financial, a Vancouver-based financial planner.

The cuts seem designed to primarily benefit the middle class, he said.

Melynda Jarratt, a member of the Fredericton Anti-Poverty Organization, said the government's stated goals to help low-income Canadians are "laughable."

"They are not addressing the reality of life for the poor people in this country," she said, citing energy prices as one of the growing expenses.

"People are still struggling to survive, so whether they save a few hundred dollars a year, it isn't going to make a difference in their daily lives."

The tax credits, purportedly designed to help families, could also cause plenty of confusion, said Elizabeth Beale, president and CEO of the Atlantic Provinces Economic Council.

"We've ended up with such a myriad of small credits that it's going to be a challenge to implement, not just for government keeping track of them, but also for individuals," she said.

For instance, Canadians might not realize they're eligible for the credits, or could be forced to hire companies to complete their tax forms, Beale said.

Possibly the most controversial of the tax credits is the introduction of the Universal Child Care Benefit program, which is expected to give families $1,200 in pre-tax funds for every child under six starting next week.

The plan came under fire from opposition MPs when the Liberal's national child-care program, which worked alongside the provinces, was cancelled.

The Conservative plan will also increase the annual benefit for children with disabilities and boost the maximum refundable medical expense supplement to $1,000 from $767.

Of all of the budget promises, the one that received the most attention was the single per cent reduction in GST to six per cent from seven.

While many consumers seem skeptical about the small decrease, the Retail Council of Canada hopes it will boost sales.

"When consumers have an extra bit of money in their pockets it's only positive as far as they are concerned, and it's certainly a positive for retailers," said Lanny McInnes, director of the council's member services in Manitoba and Saskatchewan.


Earlier this week, McInnes announced the council's goal to reduce Saskatchewan's provincial sales tax by another one per cent. He said with the GST decreasing, now is the right time to chop the increase that was introduced in 2004 because of a weak local economy.

"While one per cent may immediately not seem like a huge amount, except for on big ticket items, it certainly adds up over the year," he said.

If the talk around Bay Street is any sign, one per cent might not be such a big deal to consumers.

Janet Shelly, an employee relations worker at CIBC, recently bought an air conditioner because she decided a cool home was worth more than the money saved.

"You get a little here and they take a little there," she said, adding that while she might save one percentage point of tax once the GST cut kicks in, she expects her income tax will eclipse the cut very soon.

The government "would've got more bang for their buck with a three per cent reduction," she said. "That might've stimulated the economy."

The Conservative government still plans to follow through with an additional one percentage point GST reduction, part of the two point cut promised during the election campaign, said Finance Minister Jim Flaherty's spokesman Dan Miles.

A date for the second cut hasn't been set.

"From our perspective, tax relief for Canadians is important and we believe that this is a tax reduction that will benefit all Canadians regardless of age and regardless of income," Miles said.

Despite the public's sometimes sour response to the cuts, Beale said it's easy to criticize the Canadian tax system when comparing it only with the U.S.

"It's important to keep in perspective how this compares with the overall burden, on the personal side, in a number of European countries," she said.

"There we would stack up quite favourably."

© The Canadian Press, 2006