The Fraser Institute

The Fraser Institute

October 07, 2005 14:34 ET

The Fraser Institute: Media Release; Today's Tax Rebate Announcement an Economic Mistake

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Oct. 7, 2005) - The confirmation today that the federal government will introduce legislation dividing future surpluses in excess of $3 billion between spending, tax rebates, and debt relief is nothing short of irresponsible and constitutes a monumental economic mistake, said Jason Clemens, the director of fiscal studies, and Niels Veldhuis, senior research economist at The Fraser Institute.

"Tax rebates of this nature have been repeatedly shown to have almost no economic impact. Canadian society and the economy will not benefit from this type of tax cut," commented Clemens.

Clemens points out that tax rebates do not improve the incentives for Canadians to work, save, invest, or undertake entrepreneurial endeavours, all of which are the backbone of a prosperous economy. Worse still, the government has committed to potentially making permanent some of the tax relief from these rebates by increasing the basic exemption in future years.

"Increasing the basic exemption will not address any of the fundamental economic challenges facing the country. It simply continues a trend of asking those who work, save, and invest to subsidize others to an even greater extent," concluded Clemens.

In addition, by adopting this Bill the government will institutionalize a strong incentive for the federal government to keep tax rates higher than they otherwise would in order to allow it to regularly deliver tax rebates.

"Canadians would have been far better served had the government delivered reductions in personal income tax rates and reductions in business taxes, both of which would have improved the incentives for economically beneficial activities, such as work, saving, investment and entrepreneurship," commented Clemens.

"It seems difficult to interpret today's announcement as anything other than an attempt to purchase votes in the near term with surplus dollars," concluded Clemens.

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