Beware of Conservatives bearing gifts

If you thought you just got a $1,000 tax reduction because the Conservatives have announced a Canada Employment Credit of that amount for 2007, you would be wrong. The Conservatives are making you think you will reap more dollars from tax reductions than you actually will.

What was announced was the right to deduct $1,000 from reported income in 2007, not a deduction of $1,000 from tax payable. In other words they have allowed you to reduce taxable income by $1,000, and not taxes by $1,000. The real tax savings is 15 per cent of the $1,000 income deduction, or $150.

Does that not make you feel worthy? Your expenses for getting up and going to work some 50 weeks a year are going to be reimbursed by $3 of tax saving a week. Just think of what that will buy to help you get dressed, fed, and off to work.

The Tories have pulled the same PR trick with other measures designed to make people believe they care: witness a Tradespeople's Tool Expenses credit, and a Pension Income Credit. Take the announced values, and the benefit is 15 per cent of what you hear.

Conservatives think they can fool the media — and you — about tax measures. If you were fooled, think about how many others are still fooled.

Finance Minister Jim Flaherty, in conversation with Don Newman of Newsworld immediately following the budget, confided to the camera that Canadians pay too much tax; 50 per cent of their income goes to taxes he said. This is false. Canadians pay, overall, about half that amount, 25 cents on each dollar, in every form of tax, to each of the three levels of government.

According to a Statistics Canada report: In 1990, taxfilers on average paid $12.25 of federal tax for each $100 of income. By 2002, the corresponding amount had declined to $11.18, a difference of $1.07.

Maybe Flaherty has been fooled himself, by the Fraser Institute say, into confusing the highest marginal tax rate — the amount owed on the last dollar to those in the highest tax bracket (to both the provincial and federal government) — with the overall amount of tax paid to all levels of government.

When someone earns over $150,000, they get to report less than that in taxable income, and pay the same amount in tax as lower income earners for much of their income. For instance (using 2004 figures) the wealthy individual got to reduce taxable income by the basic exemption of over $8,000, the same as everybody else, and pay tax on the first tranche of taxable income (up to $35,000) at the lowest rate of 16 per cent, on the second tranche ($35,000 to $70,000) at the second lowest rate of 22 per cent, on the third tranche ($70,00 to $113,000) at 26 per cent and finally pay the top rate of 29 per cent only on taxable income above $113,000.

The more income you have the more you benefit from deductions against income until you pass over the maximum marginal rate, and the more you value tax credits.

For people with lower income, government spending is much more important than income tax deductions.

The priority of the Conservatives, like the Liberals, was debt reduction, some $8 billion in 2005-6, and $3 billion a year thereafter. This is designed to help out the bond market. Less debt means higher prices for existing bonds, and reduces pressure on long term interest rates. Paying down government debt frees up room for corporate borrowing, at lower cost.

The debt reduction money could have given Canada a child care system, implemented a serious climate change program, funded the Kelowna accord on Aboriginal development, and increased international aid.

Call it government by the bond market.

The new Conservative spending went to the military, with more to come, and to Conservative baubles such as guns for border guards.

Overall the big winners from tax reductions were corporations. Despite record profits, they get tax reductions, and will see a corporate surtax eliminated. This giveaway done for no good reason was started by the Liberals, halted by the NDP/Liberal budget accord, and is now back on track.

Overall the Conservatives want to reduce federal government spending further by $1.2 billion a year over three years through measures that will be announced in the weeks to come. They will also do something for the provinces, the so-called fiscal imbalance, in time for the next election. Using the language of fiscal imbalance, and starting a process to figure out how much to transfer to the provinces, was enough to get the Bloc to support the budget, assuring its passage in the House of Commons.

And yes the GST will be reduced from seven per cent to six per cent. If you buy The Globe and Mail do not expect it to cost 99 cents instead of a dollar. Either The Globe will pick up the penny or the province you live in (for non-Albertans) will up the provincial sales tax by one point. Savings for you: zero.

But then this was never to be a budget about you. It is designed to deceive, and to please, and to re-elect the Conservatives with a majority. Should the opposition be able to help people understand the deceptions, and show them who wins from the real tax cuts, it will be on its way to defeating the government.

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