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OTTAWA—Taxpayers may be in for a pleasant surprise in Prime Minister Stephen Harper's first budget tomorrow.
But environmentalists and aboriginal people are expected to be disappointed.
Finance Minister Jim Flaherty will introduce a promised reduction in the goods and services tax (GST) and the budget is likely to contain personal income tax measures that will be welcome news for middle-class earners, who could save several hundred dollars a year in income taxes as a result of his policies.
But there are strong indications the government will refuse to fund the 10-year, $5.1 billion federal-provincial deal to help aboriginal people worked out by the former Liberal government in Kelowna, B.C., last year.
And the budget is expected to abandon the Liberals' $10 billion commitment to implement the Kyoto accord meant to spur concerted international action to reduce the greenhouse gases that cause climate change.
Conservative insiders have let it be known privately that the money to pay for the Kelowna and Kyoto accords had not been set aside as expected in the books left behind by the former government. That is said to have greatly complicated Flaherty's efforts to begin fulfilling the combined $75 billion in tax cuts and spending increases promised by Harper without pushing Ottawa back into an unwanted budget deficit. The budget, which will give Canadians a clear indication how Harper intends to govern, is also expected to feature $320 million in additional foreign aid spending, more than $100 million in anti-crime measures and hefty new funds for the military (the Conservatives promised $5 billion extra for defence over five years during the election campaign).
In keeping with Harper's vow to press on with his main priorities, the budget is certain to deliver on the campaign promise to reduce the GST to 6 per cent from 7 per cent, a move that would save an average family a few hundred dollars a year. This reduction is likely to go into effect on July 1. It would drop another percentage point next year.
But the big question is whether Flaherty will dig into Canadians' pay packets to make up for the $5 billion a year the GST cut will cost Ottawa.
During the campaign, Harper said that, to afford the GST reduction, he would rescind income tax cuts introduced (but not yet implemented) by the Liberals in November.
If the Conservative government were to go ahead with rescinding those cuts, it would mean an increase in personal income tax that would on average reduce individuals' take-home pay by several hundred dollars a year — in effect cancelling out the savings Canadians will reap from a lower GST.
However, Flaherty has confirmed that the government has been looking seriously at ways to avoid saddling taxpayers with higher personal income tax payments. This might mean letting all, or part, of the Liberal tax reductions stand or introducing other measures to keep income taxes from rising.
"We'll do what we can, reasonably, this year," Flaherty said recently when asked about tax cuts. "We're looking at all the tax policies."
The Conservatives have staked considerable credibility on drafting a budget that will leave Canadians smiling.
"Let me assure this House," Harper said last month, "that when ... we introduce (the GST reduction) and other taxation measures, every single Canadian household in this country will be better off."
Instead of the tax reductions introduced by the Liberals in November, Flaherty might bring in his own package with cuts aimed primarily at middle-income earners, sources say.
The finance minister will make a pre-budget appearance this morning in Whitby, where he and children from Sir William Stephenson Public School will plant a maple tree. Flaherty will be back in Toronto on Friday to sell his budget to Bay Street during a luncheon address to a business audience.
In addition to tax measures, the government is certain to bring in its child-care allowance, which will provide $1,200 in pre-tax funds for every child under 6. It will replace the $5 billion arrangement the Liberals made with the provinces to build a national child-care program. Harper has said federal funding for that program will end next spring. But the steady political rumbling over the Tories' approach to child care is only likely to gather force after the budget.
For one thing, opposition MPs and taxpayers' advocates are likely to cry foul if Flaherty tries to count the child allowance payments as a tax cut when the Tories tote up whether Canadians are better off under their budget policies. Only parents with children under 6 will benefit from the child allowance.
There have also been suggestions from social policy groups that, because of the way the tax system works and because of provincial "clawbacks" of federal payments, well-off families with a stay-at-home spouse will capture most of the $1,200 a year in child allowance while low-income families with two earners will receive only a few hundred dollars. Beyond that, the Liberals, NDP and Bloc Québécois are demanding the government commit to long-term funding to ensure the child-care facilities that would have been created as a result of the previous government's deals with the provinces are eventually built. "I think they have to listen to the will of a majority of Parliament and Canadians about the child-care issue," NDP House Leader Libby Davies said.
"Their proposal so far is very narrow. They really have not shown us that they are actually prepared to produce real child-care spaces for Canadian families that really need it."
The budget is also expected to include:
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A major push to rein in government spending on a wide range of social, economic, cultural and environmental programs. "One of our major commitments was to restrain the rate of spending growth in government and we intend to keep that commitment," Flaherty said recently. The Conservatives aim to moderate spending by $22.5 billion over five years.
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$3.3 billion in new funds for the provinces from last year's federal budget surplus — to be used in future years to finance post-secondary education, affordable housing, public transit, northern housing and other priorities.
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A transit pass tax credit that will cost Ottawa $2 billion over five years.
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Reductions in corporate taxes ($900 million over five years as promised in the Conservative campaign) and small business taxes ($1.8 billion over five years).
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Elimination of capital gains tax on donations of listed stocks to charitable institutions, likely to cost $50 million annually in forgone revenue.
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Various tax breaks for seniors, parents with children in sports programs, students buying textbooks, businesses creating apprenticeships and workers buying tools.
One of the promises that is believed to have won over a fair chunk of high-income voters to the Conservative brand in the election — a $750 million-a-year break on capital gains paid on profits from stocks — will not be affordable in this budget, according to Flaherty. Harper's government, with only 125 seats in the 308-member House of Commons, risks defeat over the budget, which is always considered a matter of confidence when MPs vote on it. The Liberals have 102 seats, the NDP 29, the Bloc 51 and there is one Independent.
Defeating the Conservatives, however, is unlikely, given that no one wants another election right away. But the Liberals insist they will not be responsible for guaranteeing the Conservatives stay afloat as the budget makes its way through Parliament.
"I cannot pronounce to you today how the Liberals will vote on the budget when we haven't seen the budget. But I am saying that what I've heard so far doesn't inspire great optimism," Liberal finance critic John McCallum said.
"It's not our role to prop up the government. It's the NDP and the Bloc who precipitated this early election. We're going to express our own views in a clear way and we'll leave it principally up to the NDP and the Bloc to support the government. If there's an election, we'll go to an election."
And lets not forget the screeching Liberals, and their s_s media.But environmentalists and aboriginal people are expected to be disappointed.
RACK Santa Harper
) peoples now belong to New Canada.