The Fraser Institute

The Fraser Institute

October 30, 2007 06:00 ET

The Fraser Institute: Federal Government Has No Reason for Not Implementing Massive Incentive-Based Tax Relief

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct. 30, 2007) - Based on an analysis of federal government revenues and spending, Ottawa should immediately bring in large-scale, incentive-based tax relief, say economists at independent research organization The Fraser Institute.

"What is clear from the experience of the past 10 years is that the federal government has been systematically over-taxing citizens and spending the lion's share of the proceeds at the expense of meaningful tax relief for Canadians," said Jason Clemens, Resident Scholar in Fiscal Studies at the Fraser Institute.

Extra Revenues and Spending

The federal government has collected $79.5 billion more in revenues than it expected since the government first recorded a surplus in 1997-98. This means that on average, the federal government has collected 4.5 per cent more in revenues each year than it expected.

Almost two-thirds of these unexpected revenues were spent. The federal government has spent $51.6 billion or 64.8 per cent of the extra revenues collected since 1997-98 on new and existing programs.

"The government appears to believe that if they have the money, they should spend it," Clemens said.

"The financial performance of the federal government this year and projections for the future both show large ongoing surpluses. The latest financial report for the federal government showed a cumulative five-month (April to August) surplus of $8.7 billion. This is more than $1.5 billion above the same period last year."

Tax Relief Now

"The current and historical evidence is clear that the federal government can afford large-scale tax relief. The challenge is not whether to cut taxes but rather which taxes to cut," Clemens said.

"If economic prosperity is the goal for this government, then broad, incentive-based tax relief for all Canadians is the only answer."

Clemens outlined the tax relief priorities:

- rate reductions and increases to the income thresholds for personal income taxes, particularly for middle and upper income Canadians;

- corporate income tax rate reductions with a medium term goal of reducing the statutory rate to 12 per cent;

- aggressively promote sales tax harmonization for the five provinces still maintaining non-harmonized sales taxes (BC, SK, MB, ON, and PEI);

- elimination of the capital gains tax;

- further reductions in taxes on dividends and interest income;

- eliminating contribution limits for RRSPs and pensions; and

- dramatically increasing the threshold for small business income to $1 million.

"The incentive-based tax measures listed above will encourage savings, investment, and entrepreneurship which in turn will improve our economy and benefit all Canadians," Clemens said.

The Fraser Institute is an independent research and educational organization with offices in Calgary, Montreal, Tampa, Toronto, and Vancouver. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit

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