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Fiscal update

Globe and Mail Update

Ottawa — The federal government unveiled $39-billion in tax cuts and spending Monday in a mini-budget whose life expectancy could be measured in days as opposition parties threaten to force an election within a week.

The document, released by Finance Minister Ralph Goodale, also includes a heavy emphasis on reducing Canadians' anxiety about their economic future by investing billions in post-secondary education and work training programs while making cuts to corporate taxes.

Highlights
  • Rate for lowest income tax bracket to be reduced one percentage point to 15 per cent, retroactive to last Jan. 1.
  • One percentage point reduction to each of the middle tax rates by 2010.
  • Increase in the income level at which the top tax rate applies, starting in 2010.
  • Immediate $500 increase to the basic personal amount of income all Canadians can earn without paying federal tax.
  • A Working Income Tax Benefit for low-income earners starting in 2008.
  • Elimination of the federal capital tax for business next year — two years ahead of schedule.
  • Forecast surplus of $96.8-billion over six years to be trimmed to $15.5-billion after tax cuts, new spending, contingency reserve and other factors.
  • Economy forecast to grow by 2.8 per cent this year, 2.9 per cent next year, and 3.1 per cent in 2007.
  • Aim to reduce debt-to-GDP ratio to 20 per cent by 2020.

The Liberals attempted to burnish their reputation for economic stewardship by releasing a multi-year "Plan for Growth and Prosperity" that is meant to serve a blueprint for measures to improve Canada's competitiveness in the face of increasingly brutal global competition.

Officially dubbed the Economic and Fiscal Update, Monday's mini-budget is expected to form the backbone of the Liberal re-election campaign, which could be kicked off next week if the Liberals reject an ultimatum from opposition parties.

"At its core, this plan is about people — our quality of life, the quality of our natural environment, the sustainability, creativity, safety and security of the communities in which we want to live," Mr. Goodale said in a prepared statement.

"It's about people living fulfilling lives, the kinds of retirements we can expect to enjoy and the opportunities our children will have."

But the budget may not last more than a week or so, as opposition politicians have threatened to bring down the Paul Martin government if it doesn't agree to an election call for early January. The opposition is willing to wait that long if it will mean salvaging a series of legislative initiatives, but will bring down the government if Mr. Martin doesn't guarantee a January call.

Earlier Monday, Prime Minister Paul Martin said he could not abide by a proposal put forward after the weekend by the opposition parties, calling it "untenable."

Opposition Leader Stephen Harper responded by saying the Prime Minister has lost "the moral authority to run this country" and that neither he nor the other opposition parties would back down.

The mini-budget is heavily weighted to personal income tax cuts, which comprise about $30-billion of the entire economic plan unveiled.

Under the proposal for personal tax cuts, the federal government pledges to increase by $500 the earnings that individual Canadians can shield from the tax collector — widely known as the basic personal exemption. The government will also cut tax rates across all income brackets, starting with low- and middle-income earners.

The Liberals are proposing cutting the lowest income tax bracket to 15 per cent from 16 per cent, retroactive to January 2005. They are also proposing chopping the two higher tax brackets by 1 percentage point by 2010.

The cuts mean a family of four with two working parents earning $75,000 will pay $798 less in taxes by 2010.

The document also provides $2.1-billion over five years to increase aid to post-secondary students, particularly for those in lower and middle-income brackets. Another $3.5 billion over the same period will go to increase work-training programs, including for Aboriginals, immigrants and the disabled.

Mr. Goodale also announced $1 billion in 2005-2006 for the provinces and territories for urgent investments for universities and colleges. That could include replacing or upgrading items like outdated laboratory equipment and antiquated computer technology, although officials could not be more specific.

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