Archives

Business Leaders Propose Seven-year Plan to cut Annual Federal Tax Bill by $18 billion

October 5, 1998

The Business Council on National Issues (BCNI) is urging the federal government to reduce its annual tax bill by $18 billion over the next seven years, beginning with a $3 billion tax cut in the 1999 budget.

Some 80 percent of the proposed cuts would reduce personal income tax rates, with 13 percent going to reduce Employment Insurance premiums and seven percent allocated to assist in corporate tax reform. The $14.5 billion in personal tax cuts is equivalent to 20 percent of this year’s personal income tax revenue.

The BCNI, which is composed of the chief executive officers of 150 leading Canadian companies, said that reducing public debt must remain the top fiscal priority in an environment of global economic uncertainty. But Canada’s personal income tax burden is so far out of line with that of the country’s major trading partners and competitors that significant tax reduction must begin now.

In a paper entitled Creating Opportunity, Building Prosperity — A Tax Reduction Strategy for Canadians, the BCNI has proposed a framework for affordable and sustainable tax cuts that would bring down the annual tax bill by an additional two to three billion dollars each year.

“It is time not merely to tinker, but to change the course of personal taxation in Canada,” said BCNI President and Chief Executive, Thomas d’Aquino. “For more than a generation, persistent deficits ensured that taxes could only go up. Now the government must convince Canadians that taxes are going down, that they will continue to fall year after year and that once cut, they will stay cut.”

The BCNI paper, developed as part of the Council’s Tax Reduction Initiative over the past six months, outlines three key objectives:

  1. To reduce the overall burden of personal income tax from its current record of 20 percent of average family income or one dollar in five to its 1985 level of less than one dollar in six.
  2. To reverse the worst effects of the partial deindexation of tax brackets and credits since 1986, in part by eliminating all federal tax for at least one million more Canadians with very low incomes.
  3. To improve Canada’s competitiveness by cutting the marginal tax rate by five percentage points for those earning between one and five times the average industrial wage.

“These objectives cannot be achieved in a single year. But the government can have a significant impact on the confidence of Canadians by committing itself to a credible, multi-year framework for continuing tax reduction,” Mr. d’Aquino said.

A key characteristic of the BCNI’s proposed framework is flexibility. Its tax cut schedule is based on expectations of moderate economic growth. If growth slows, it may be necessary to delay certain elements, but by the same token, periods of more rapid growth would permit the government to speed up the schedule. The timing of tax cuts may shift, but their relative priority would be unchanged.

The overriding need for faster debt reduction and for meaningful personal tax cuts requires strict control over spending and a gradual approach to reduction of Employment Insurance premiums.

“While Employment Insurance premiums should be no higher than required to sustain an insurance-based system, reaching this goal will take time,” Mr. d’Aquino said. “For now, Canada’s payroll tax burden is low by international standards while its personal income tax burden is excessive. Given the uncertain global outlook and the need for greater competitiveness, income tax cuts must take priority and should be introduced in the next federal budget.”

The Business Council on National Issues is a not-for-profit, non-partisan organization that is the vehicle for Canadian chief executive participation in national and global issues. The member companies of the BCNI administer close to $1.9 trillion in assets, have a yearly turnover of more than $500 billion and are responsible for a majority of Canadian private sector investment, exports, research and development and training.

CREATING OPPORTUNITY, BUILDING PROSPERITY
A TAX REDUCTION STRATEGY FOR CANADIANS

TAX CUT PROPOSALS AT A GLANCE

1999 budget
$3.2 billion tax cut

  • Increase basic and spousal amounts by $500
  • Complete elimination of three percent general surtax
  • Increase floor for application of five percent high-income surtax to $150,000
  • Extend phase-out of National Child Benefit Supplement to threshold of 26 percent tax bracket
  • Reduce Employment Insurance premiums by five cents per $100 in earnings

2000 – 2001
$3.5 billion tax cut

  • Increase basic and spousal amounts by another $500
  • Raise 26 percent tax bracket threshold by $2,000
  • Raise 29 percent tax bracket threshold by $4,000
  • Reduce Employment Insurance premiums by a further 10 cents

2002 – 2005
$11.5 billion tax cut

  • Increase basic and spousal amounts by a further $500
  • Reduce second bracket rate from 26 percent to 21 percent
  • Reduce third bracket rate from 29 percent to 26 percent on income up to $150,000
  • Continue applying 29 percent rate to incomes above $150,000
  • Eliminate remainder of five percent surtax
  • Reform corporate taxation, including a cut in the general corporate rate of at least three percentage points
  • Continue to reduce EI premiums by five cents per $100 each year
  • Restore full indexation of all tax brackets and credits

Total annual relief in personal income tax:
$14.5 billion plus impact of reindexation

Total annual tax relief if all measures implemented:
$18.2 billion plus impact of reindexation