Canada Sets Course for Broader Tax Cuts

(Reuters)

Canada’s Conservative government signaled on Tuesday it would back away from its approach of small targeted tax credits and propose broad-based corporate and individual tax cuts, possibly in a fiscal plan expected in November.

Canada’s minority Conservative government unveiled its policy agenda on Tuesday in the Speech from the Throne, opening a new session of Parliament.

In addition to repeating a pledge to cut the federal sales tax for a second time to 5 percent, the government appeared poised to flesh out what it called a “long-term plan of broad-based tax relief,” either in its traditional Fall Economic and Fiscal Update or in a budget next spring.

Finance Minister Jim Flaherty has been criticized for showering minor tax breaks to target groups in his last budget rather than slashing income tax rates.

“What you have is direction ... what we’ll be looking for is specifics in terms of what they’ll be doing with broadly-based tax relief,” said Perrin Beatty, president of the Canadian Chamber of Commerce.

“That’s what they’re suggesting here and that would be encouraging if it were so,” he said.

One surprise detail in the policy outline is a hint that the federal government may consider invoking special powers allowing it to strike down provincial laws and regulations that it sees balkanizing the country and making it less competitive.

It cites inter-provincial barriers for trade and labor as a hindrance to competitiveness.

There has been much speculation that Ottawa would use this constitutional authority to break an impasse with some provinces over the creation of a single securities regulator.

Every province has its own securities regulator but the government has been pushing to replace that system with a single securities regulator.

“They’re signaling a more activist approach to ensuring a single market in Canada,” said Beatty.

Jayson Myers, president of the Canadian Manufacturers Association gave the speech a mark of 7.5 out of 10 and anticipates Flaherty will continue to help out his sector by extending a special write-off for manufacturers on investments in machinery and equipment.

Manufacturers have been hit hard by the Canadian dollar’s strong rise in the past few months, which has not been accompanied by cheaper input costs for businesses, Myers said.

“I’m very worried. The rate of closures is picking up, the rate of lay-offs is picking up,” he said.

“This is like an immediate price cut of 66 percent on your export sales if you’re priced in U.S. dollars.”

The text of the Speech From the Throne is at available here.