Ottawa The federal government admits Canadians are overtaxed and it's promising measures to ease their pain by cutting personal income taxes over the next six years.
Those reductions would mean a Canadian middle-class family of four— until now the highest-taxed in the G7 — might be able to buy a new 27-inch TV or a modest computer upgrade with the tax savings next year.
“Canada raises more of its revenue as a share of GDP from personal and corporate income tax than any other G7 country,” the government said in its fiscal update Monday, noting some taxes “are more damaging to Canadians' living standards.”
Canada derives 11.7 per cent of its gross domestic product from personal income taxes, higher than either Italy or Britain and well above the G7 average of 8.9 per cent.
The president of the Canadian Chamber of Commerce said the measures have been a long time coming.
“The fact that the government has finally admitted that Canadians are overtaxed and they have to start on a program of doing something about it is welcome news,” said Nancy Hughes Anthony.
“Average Canadians have known that for years.”
Under the plan proposed Monday, a two-income family of four earning $60,000 would pay $499 less in taxes in 2006 if the Liberal plan is implemented.
The measures include a $500 increase to the amount Canadians can earn without paying federal income tax. That maximum would increase to $8,648 from $8,148. That'd save taxpayers $80.
The savings also include a reduction in the lowest personal income rate to 15 per cent from 16 per cent, effective last January.
That would be worth $272 to the family of four.
The Liberals say the measures will help make it worthwhile for social assistance recipients to go to work, citing the need for provincial co-operation on the issue.
“For social assistance recipients, in particular, moving into the workforce often means facing a series of obstacles that may make them financially worse off,” says the document.
“They may lose thousands of dollars in social assistance and related benefits such as access to subsidized prescription drugs and housing.”
They must also pay work-related expenses, income taxes, employment insurance premiums and pension plan contributions, plus child care.
“These can be significant barriers to paid employment,” said the document, adding a typical single parent at the low end of the income scale could lose almost 80 cents for each dollar earned to taxes and reduced income support.
The loss of other benefits such as subsidized housing, prescription drug subsidies and work-related expenses could boost that amount, it said.
“While progress has been made (toward removing work disincentives) more needs to be done.
“Lower personal taxes would help more low- and modest-income Canadians to achieve their aspirations of greater workforce participation.”
Hughes Anthony noted the personal income-tax measures are loaded at the front-end of the plan with corporate incentives further down the road.