Eight of 10 Canadians Will Pay Less Tax in Sweeping Reform
TORONTO (AP) _ Eight out of 10 Canadian households will pay less income tax under sweeping changes announced by a Conservative government trying to regain its popularity.
In a long-awaited policy document on tax reform, Finance Minister Michael Wilson told Parliament in Ottawa on Thursday he plans to lower income taxes and effectively increase business and sales taxes in two stages.
Under the first major tax reform in Canada for 15 years, taxes will be reduced an annual average of $356 for 8.9 million households starting Jan. 1, 1988.
Another 1.5 million households, stripped of former deductions, will pay an average of $499 more.
Corporate tax rates also go down but ″the crazy quilt of special incentives and write-offs″ will be dismantled, resulting in higher overall business taxes and less opportunity for tax avoidance, Wilson said.
Income tax revenue will drop $8.25 billion over the next five years, while corporate tax revenue will increase by $3.75 billion.
To recover the $4.5 billion shortfall, Wilson announced a second-stage of reform in which federal sales tax will be extended to most goods and services, possibly by combining the present manufacturers’ tax with provincial sales taxes.
The sales levy, taking income-tax savings out of consumers’ pockets, will not be implemented until at least 1989 - probably after the general election Prime Minister Brian Mulroney must call before the end of his five-year term.
Languishing in third place in the polls despite his comfortable majority in Parliament, Mulroney is relying on tax reform and a free-trade pact now under negotiation with the United States to bring back the voters, political analysts said.
Opposition leaders denounced Wilson’s package for failing to impose a minimum corporate tax and relying too heavily on a comprehensive sales tax, which will hurt low-income families more than the rich.
″It’s not tax reform; it’s a tax grab,″ said Liberal Party leader John Turner, who predicted the revised sales tax would become the ″most massive tax increase in Canadian history.″ He called for Wilson’s resignation.
Individuals now contribute 45 cents of every tax dollar collected in Canada and businesses 10.5 cents, with the rest coming from sales and excise taxes. The savings announced Thursday will cover less than half the income tax increases families have paid since Mulroney came to office.
New Democratic Party leader Ed Broadbent said the changes still leave 60,000 profitable companies free to pay no tax, but Wilson, in a Canadian Broadcasting Corp. interview, said that number was exaggerated.
The finance minister said lower tax rates were needed to keep Canada competitive following tax reform in the United States. The integrated economies of the two countries could have cost Canada jobs and investment if there was disparity in their tax regimes.
Small business and social welfare groups praised the reforms, which exempt 850,000 Canadians from the income tax net, help the elderly and set a low 12 percent tax rate for small companies.
″They finally got it right,″ said John Bulloch, president of the Canadian Federation of Independent Business.
Analysts said investors are among the biggest losers, stripped of deductions and shelters. Banks, trust, loan, real estate and insurance companies will pay income tax for the first time starting next year.