The Fraser Institute

The Fraser Institute

March 16, 2005 10:00 ET

Saskatchewan's budget must hold the line on spending and introduce business tax relief

REGINA, March 16 - In Saskatchewan's upcoming budget, the province
must control government spending and implement a 4-year tax relief program,
aimed principally at business taxes, recommend Niels Veldhuis and Jason
Clemens of The Fraser Institute.
"Unexpected revenues from high commodity prices (particularly oil, gas,
and potash), increased equalization payments from Ottawa, and a relatively
stable economy give the province the fiscal room to introduce a
prosperity-enhancing budget," said Niels Veldhuis, senior research economist
at the Fraser Institute. "The government must use this opportunity to make
fundamental changes to the province's fiscal policies."

Migration: Saskatchewanians Vote with their Feet

Saskatchewanians continue to vote with their feet by seeking
opportunities in other provinces. Between 1994 and 2004, some 53,530
Saskatchewanians left the province. Over 40 percent of those were between the
ages of 20 and 34: the province's future workforce.
"The continued out-migration of citizens should be a clear indication
that the status quo is simply not sufficient to deal with the economic
problems facing the province," noted Veldhuis. "A bold, new vision of economic
prosperity must be developed and, more importantly, implemented, if the
fortunes of the province are to be corrected."

Control Government Spending

Government spending must be brought under control, particularly at a time
when the province's population is declining. The province's 2004 budget
forecasted total government expenditures of $6.75 billion for the current
fiscal year (2004/05), increasing by 1.6 percent per year to $7.1 billion in
2007/08. With an expected surge in forecasted revenues, the government must
adhere to this spending plan in order to provide the fiscal room needed for
incentive-based tax relief.
It is also critical that the province recognize that many of the problems
with government services and programs have little to do with the amount of
money that is spent but rather how that money is spent. For example, spending
on health care in Saskatchewan has risen from $1.5 billion in 1994/95 to
$2.8 billion in the current fiscal year (2004/05).
Despite the marked increase in spending, health performance in
Saskatchewan continues to deteriorate. Since 1994, total wait times from GP
referral to treatment have increased an incredible 243 percent and patients in
Saskatchewan suffer from relatively poor access to specialist physicians and

Incentive-Based Tax Relief

Saskatchewan more than most other provinces must introduce tax cuts
specifically aimed at improving the incentives to invest and to undertake
entrepreneurial activities. The following tax relief measures are recommended
for implementation over the next four years:

1) Completely phase-out the corporate capital tax;

2) Dramatically reduce the statutory corporate income tax rates while
increasing the threshold applicable for small businesses;

3) Introduce broader tax credit program to the provincial sales tax to
avoid taxing business inputs or pursue integration with the GST;

4) Focus additional tax relief at middle and upper income tax rates
and/or the thresholds at which they apply; and

5) Re-introduce automatic indexation of the tax system.

Note: Niels Veldhuis, Senior Research Economist will be attending the
budget lock-up and will be available for comment prior to and after the
presentation of the provincial budget on March 23, 2005.

Established in 1974, The Fraser Institute is an independent public policy
organization with offices in Vancouver, Calgary, and Toronto. For further
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