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Introduction
Canada’s economic and fiscal fundamentals are rock solid, yet the world economy is experiencing turbulence and increased uncertainty.
Given this global economic uncertainty, now is the time to act. Our strong fiscal position provides Canada with an opportunity that few other countries have—to make broad-based tax reductions that will strengthen our economy, stimulate investment and create more and better jobs.
Today, the Government is taking bold new steps to build a better Canada. We are reducing taxes further for Canadians and ushering in a new era for Canadian business taxation, while further reducing the federal debt.
This Economic Statement provides a total of $60 billion in broad-based tax relief over this year and the next five years. This brings total tax relief provided by this Government since coming to office to almost $190 billion over the same period.
Canada is the greatest country in the world, a nation of enormous potential built through the imagination and dedication of ordinary Canadians. Canadians expect their Government to build on this legacy by setting clear goals, delivering results, being accountable and putting Canadians and their families first.
Highlights
Recent Economic Developments and Prospects
- Private sector forecasters expect real GDP growth of 2.5 per
cent in 2007, 2.4 per cent in 2008 and 2.7 per cent in 2009.
- The private sector forecast for growth in 2007 is up from the
2.3 per cent forecast at the time of the March 2007 budget,
balancing stronger-than-expected GDP growth for the first half of the
year and weaker growth in the second half.
- As well, GDP inflation has been revised up significantly to
3.3 per cent from 1.5 per cent at the time of the budget.
- Stronger-than-expected growth in the first half of 2007 and higher
GDP inflation mean that the level of nominal GDP—the broadest
measure of the tax base—is now expected to be close to 1.9 per
cent higher in 2007 than forecast at the time of the budget.
- However, the risks to the Canadian economy are tilted to the
downside.
- A significantly weaker U.S. housing market and tighter credit
conditions have added uncertainty to the U.S. economic outlook.
- The Canadian dollar has traded above parity with the U.S. dollar
for the first time in 30 years, due in part to continued increases
in commodity prices and generalized U.S.-dollar weakness. This is
increasing pressure on our trade sector.
- The Government is determined to act from a position of strength to
respond to the growing global uncertainties.
Fiscal Projections
- The strength of the economy over the first half of 2007 has
bolstered revenue growth and improved the overall fiscal position of
the Government.
- The Government is directing these higher revenues to tax reduction
and debt reduction.
- The Government plans to reduce the federal debt by $10 billion
this year. This will bring total debt reduction since 2005–06 to
over $37 billion, lowering the federal debt burden by about
$1,570 per person. The Government will continue to plan on debt
reduction of $3 billion in 2008–09 and each year thereafter.
- This also means that the target for reducing the debt-to-GDP (gross
domestic product) ratio to below 25 per cent will be achieved by
2011–12, three years ahead of the original target date. This will
mark the lowest debt burden since the late 1970s.
- The Government’s Tax Back Guarantee is ensuring that interest
savings resulting from debt reduction are being returned to Canadians
in the form of lower personal income taxes. Thanks to achieved and
planned debt reduction, the Guarantee will reach $2.5 billion by
2012–13.
- At this time of global economic uncertainty, the Government’s
strong fiscal position provides Canada with an opportunity that few
other countries have—to put in place historic tax reductions that
will bolster confidence and encourage investment, while at the same
time remaining in a surplus position.
- The tax reductions proposed in this Economic Statement total almost
$60 billion over this and the next five years. As a result, the
federal tax burden, measured by total federal revenues as a share of
the economy, will fall to 15.1 per cent by 2011–12, the lowest
ratio in nearly 50 years.
- The Government is managing spending effectively through the new
Expenditure Management System introduced this year, ensuring value for
money and keeping program expense growth, on average, below the rate
of growth of the economy.
- After taking into account the tax and debt reductions proposed in
this Statement, the planning surplus is $1.6 billion this year,
$1.4 billion next year, $1.3 billion in 2009–10, and then
rises to $4.5 billion in 2010–11, $7.2 billion in 2011–12
and $9.8 billion in 2012–13.
Broad-Based Tax Reductions for Canadians
This Economic Statement proposes broad-based tax relief for individuals, families and businesses of almost $60 billion over this and the next five fiscal years. Combined with previous relief provided by this Government, total tax relief over the same period is almost $190 billion.
- To improve productivity, employment and prosperity in an uncertain
world, a bold, new tax reduction initiative will reduce the general
federal corporate income tax rate to 15 per cent by 2012 from its
current rate of 22.1 per cent. The general corporate income tax
rate will decline by 7.12 percentage points between 2007 and 2012—giving
Canada the lowest overall tax rate on new business investment in the
Group of Seven (G7) by 2011 and the lowest statutory tax rate in the
G7 by 2012.
- The Government is seeking the collaboration of the provinces and
territories to reach a 25 per cent combined federal-provincial-
territorial statutory corporate income tax rate, to make Canada a
country of choice for investment.
- To support small business, the reduction in the tax rate to 11% for
small business, currently scheduled to be reduced in 2009, will be
accelerated to January 1, 2008.
- The goods and services tax (GST) will be reduced by a further
1 percentage point as of January 1, 2008, fulfilling the
Government’s commitment to reduce the GST to 5 per cent.
- The GST credit for low- and modest-income Canadians will be
maintained at its current level even though the GST rate is being
reduced. Maintaining the credit, while reducing the GST rate to
5 per cent from 7 per cent, translates into more than
$1.1 billion in benefits annually for low- and modest-income
Canadians.
- The lowest personal income tax rate will be reduced to 15 per cent
from 15.5 per cent, effective January 1, 2007.
- The amount that all Canadians can earn without paying federal income
tax will be increased to $9,600 for 2007 and 2008, and to $10,100 for
2009.
- Together, these two measures will reduce personal income taxes for
2007 by more than $400 for a typical two-earner family of four earning
$80,000, and by almost $225 for a single worker earning $40,000.
- In order to make businesses even more competitive, it is essential
that Employment Insurance rates be reduced for employers and
employees. The Employment Insurance Chief Actuary’s 2008 Report
forecasts the break-even rate in 2008 will decline by 10 cents per
$100 of insurable earnings for employers and 7 cents for employees.
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