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Smoke and surpluses

When governments consistently ring up large budget surpluses, as the federal Liberals have done for years, it means taxpayers are handing over too much of their hard-earned money. The best way to remedy this problem is to lower taxes. Instead, Prime Minister Paul Martin has opted for a complicated rebate scheme that smells like an election gimmick and may not put a single dime back in anyone's pocket. Worse, his government plans to enshrine the flawed dividend plan in law.

On the surface, Ottawa appears to be borrowing a page from the playbook of Alberta Premier Ralph Klein, who intends to hand every Albertan a so-called prosperity bonus of about $400 in the wake of windfall revenues from the oil patch. This one-time payment is no substitute for real tax relief, but there is no disputing that it is politically popular. And at least Albertans know roughly how much money they will be getting. That is not the case with the federal plan.

Ottawa intends to divide unexpected future budget surpluses three ways -- one-third for new spending, another third for debt repayment and the rest for tax relief. This harks back to the politically successful formula adopted by the Chrétien government, when Mr. Martin was finance minister. It remains a fiscally responsible method for dealing with surpluses. The formula would take effect only after Ottawa had set aside the $3-billion contingency reserve in each budget. Such a cushion makes sense. It's what happens after that that raises serious questions.

The portion of excess surpluses designated for tax relief would first be applied as a credit on income-tax returns in the following calendar year. The year after that, the basic personal exemption would be boosted by that same amount. The problem is that it's impossible for taxpayers to know how much money they will be handed back in any given year, because the amount will be totally dependent on the size of the surplus. It will also depend on the government holding the line on spending during the fiscal year. It would be far more efficient and more productive for the economy to provide permanent tax relief instead, and to adjust government spending priorities accordingly.

Heading into the next election, the Liberals undoubtedly want to restore their reputation for fiscal discipline. But if Mr. Martin is such a fiscal disciplinarian, why does he need legislation of the sort designed to rein in profligate governments? And why does his government continue to overtax Canadians?

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