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Friday, January 28, 2005
Monte Solberg letter
Hon. Ralph Goodale, P.C., M.P.
Minister of Finance
Room 607, Confederation Bldg.
House of Commons,
Ottawa, Ontario
K1A 0A6
Dear Minister,
Thank you for the opportunity to provide the Conservative Party's perspective on the measures that should be included in Budget 2005.
We have made no secret of our belief that the federal government taxes Canadians too heavily. At its simplest, this leads to reduced incentives to work, to go to school and invest in education, to develop businesses—especially small businesses—and to save for the future. And over taxation of the corporate sector, simply put, kills jobs because it reduces the incentive to invest in productive capacity in Canada.
The government’s failure to take action on this issue means that both our economy and government revenues grow at levels far below their potential. For Canadians this means lost opportunities. For government it means a smaller revenue stream which threatens our ability to provide the quality of social services Canadians deserve. We in the Conservative Party of Canada remain frustrated at the pace of change and the priorities you continue to present to Parliament and the Canadian people.
I know that both you and the Prime Minister have argued that tax cuts are both unaffordable and a low priority for your government. During the last election campaign you stuck to the position that the surplus in 2003/04 was going to be small—indeed, $1.9 billion—and told the Canadian people that the Conservative plan to provide tax relief would cause the government to run a deficit. But within weeks of winning the election, not only were you proposing spending that far exceeded the amount of money that, during the campaign, you told Canadians would be available, but that the surplus would be larger than expected. And then in the Fall of 2004 you announced that, indeed, it was $9.1 billion.
We find the same tactics again in your approach to fiscal management in this Parliament. Budget 2004 planned a surplus of $4 billion; in November you seemed to believe it would be $8.9 billion; and our own estimates in January suggest something on the order of $11 billion—before year end allocations that you undoubtedly will bring forward.
We are even more confident now that the current situation and the outlook for 2005/06 are sufficiently strong to make major tax relief a centerpiece of your Budget 2005. Let me remind you of the priorities a Conservative Party of Canada has proposed.
The Conservative Party's amendment to the speech from the Throne called for tax relief for low and middle income Canadians, an independent process for forecasting the government’s financial situation, and that all spending from the Employment Insurance program be for the benefit of workers. In an effort to defeat the amendment the Prime Minister declared that the vote on the amendment would be regarded as a confidence motion. He later changed his position but not before making clear his reluctance to reduce the tax burden on Canadians.
The Prime Minister has since confirmed that reducing taxes is a much lower priority than initiating new large spending initiatives. We argue that this position is both unfair to Canadians whose take home pay has barely grown at all over the last fifteen years and dangerous to our long term economic growth and therefore to our ability to fund our social safety net. For these reasons we feel that budget 2005 must announce a plan to given all Canadians an immediate pay hike through a program of lower taxes. Secondly the budget should include a longer term standard of living strategy that starts the process of strengthening Canada's competitive position through a program of targeted tax relief, reduction of burdensome regulations, strategic spending and measured debt repayment.
The CPC believes that the government has a moral obligation to fulfill their Throne Speech commitment to reduce taxes for low and middle income Canadians. And furthermore, you should deliver on your promise to increase the Guaranteed Income Supplement, a measure that benefits those in greatest need.
As you know Don Drummond's recent report showed that Canadians workers have seen their real take home pay grow by only 3.6 per cent since 1989, while real GDP per worker rose by 21.8 per cent. His report also noted the staggering tax load faced by middle income Canadians.
We have also consistently argued that the government is exaggerating the size and impact of its tax relief measures first introduced in 2000. Mr. Drummond confirmed this when he pointed out that the dramatic jump in Canada Pension Plan premiums largely ate up the benefit of the government's income tax reductions. We saw that happen again on January 1, 2005.
The Conservative Party of Canada believes that the case for immediately reducing taxes is overwhelming and is affordable. It is obvious, as we argue below, that doing the same thing over and over will not give us better results. We have been doing this for decades and the time for change is now. You can start the change in your Budget 2005.
We believe that Canada needs a long term strategy to raise the living standards for all Canadians. In our Supplementary Report to the Finance Committee, we argued that now is the time to start—that more of the same is not good enough—that Canadians deserve better. During the past forty years Canada’s productivity has remained little changed compared with that in United States—it remains stuck at about 85 per cent of the U.S. level.
For a nation that has endured numerous innovation, competitiveness and productivity enhancing attempts from Liberal governments, we have precious little to show for it. Canada remains where it was some 40 years ago. The productivity gap is relevant, because it more than accounts for the income gap of $6,078 per Canadian compared with Americans. Surely we can do better—having a family of four with some $24,000 a year less income to spend than they would have in the United States is nothing to celebrate.
Furthermore, unemployment rates in Canada are stuck well above those in United States. This has persisted for a quarter century. Back in the early 1970s, Canadian and U.S. unemployment rates were the same, or ours were even lower, they are now locked in a gap that should be unacceptable to all Canadians.
All this should spur the inclusion of tax cutting measures that centre on job-killing taxes such as capital taxes, employment insurance premiums, capital gains taxes, corporate taxes generally, and, most importantly, the immediate reduction of personal income taxes. Again, as Mr. Drummond reports, the top federal-Ontario marginal rate starts at $113,804 at 46.41 per cent, and it is a remarkable 43.41 per cent at an income of $70,000. He also pointed out that when higher marginal taxes are combined with clawed-back government benefits, the effective marginal tax rate is an astounding 80 per cent for lower income Canadians. Do we need more evidence that the system needs overhaul?
We want the capital tax eliminated in 2005 rather than waiting for 2007 as is your plan now. This tax is universally deemed to be a job killer and has no place in the Canadian tax system.
The effective large business tax rate in Canada remains well above that in United States. We cannot afford this situation and we want the effective tax rate reduced in Budget 2005. It is also critically important that you announce plans to permit more generous depreciation schedules for the purchase of new equipment and technology, especially now, when the high Canadian dollar makes much of this investment more affordable—because it is imported—even as it makes Canadian exporters less competitive.
For several years in a row the Auditor General has concluded that the government has not respected the intent of the Employment Insurance Act. The EI Account now has a whopping $46 billion surplus—yet we all know there is no money there! The Chief Actuary’s Outlook shows that the three cent cut in premiums for 2005 is still some 10.8 per cent higher than the breakeven rate. This government should stop overcharging Canadians! EI premiums should be lowered immediately, and stakeholders must be given a say in benefit and premium levels.
It is accepted that taxation levels affect the willingness of investors to build new industrial capacity in Canada. If taxation is too high and investment too low, the competitive abilities of Canadians can not be unleashed. Countries like Australia and Ireland have shown the way and are benefiting from large gains in productive investment by using low corporate tax rates as a method to attract investment.
It is also clear that we are not getting our share of foreign direct investment and in fact we have been experiencing a net outflow. Sadly, Canadians see better opportunities elsewhere and, equally, there is little prospect of reversing this trend unless major changes to tax policy affecting the Canadian business investment environment are brought forward in Budget 2005.
Today, in Canada, one of the most hard-hit sectors is agriculture—drought and BSE continue to take their toll. The income stabilization program has failed in its stated objective to provide income support on a consistent basis. We encourage the government to allow primary producers to average their incomes over a five year period as a way of helping them ease their tax burden and the challenges of weather and disease.
The regulatory regime farmers face needs attention. They have to go struggle with a bureaucratic system that needs fixing—far too much effort is spent on learning what they can access, often to find that they are not eligible. A new approach is necessary.
But there are numerous other ideas that can help primary producers of all kinds. We urge the government to raise the capital gains exemption for primary producers to $1 million, as a way of allowing the transfer of farms from one generation to the next. Doing what we can to help preserve the family farm should be a priority of this Government. .
Improving Canada's infrastructure is central to raising our living standards. And we strongly support the transfer of additional resources to Canada’s cities. There is consensus on this and we want to see action in the Budget.
Report after report shows the importance of education in raising living standards and the ability of Canadians to participate in their society. Yet, the federal government continues to have a limited role in the support of education in Canada. While we respect provincial jurisdiction in this area, we feel the federal government can do far more to promote education in our country.
Specifically, we want the Budget to contain initiatives to expand the tuition grant program for students of modest means who want to attend post-secondary educational programs. To help students further, we also want to see federal income taxes removed from bursaries and scholarships.
As you know, Minister, relationships with the provinces are especially difficult in two areas. First, we have the discord around what the Prime Minister promised the Premier of Newfoundland and Labrador during the election of 2004. The spectacle Canadians have witnessed is unseemly and should end. Furthermore, it is well known that the provinces remain, collectively, in deficit. Arguing that there is no fiscal imbalance after all these years and repeating, time and again, that the provinces have access to the same tax bases as the Federal government simply misses the point—provinces can tax only in their jurisdiction! And when the federal government sets the rules and puts constraints over the provinces in how they manage affairs in their jurisdiction, this imbalance is created. We want to see the Budget contain measures that reduce the fiscal imbalance.
Finally, if the tragic events in Asia prove anything about our military capacity, it is that Canada’s must be boosted immediately. We want to see a firm commitment on the 5,000 front-line troops financed, immediately, in the Budget. We want, also, to see the heavy lift capacity of our forces put in place. No longer should we be waiting to rent aircraft from others to meet our commitments.
In short, Minister, the Conservative Party of Canada believes that the time is now for a major assault on the key elements I have outlined in this letter—first, significant tax cuts for working Canadians; second, measures that will enhance business incentives to innovate and invest in Canada; and, finally a boost to the spending that you have promised to help bring Canada’s military to a more effective level. And, just as we argued during the last election campaign, we are confident that our finances can afford it.
Sincerely,
Monte Solberg, M.P.
Finance Critic
Official Opposition of Canada
Posted by Norman Spector on January 28, 2005 | Permalink
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Comments
Thanks for posting this. It's a pretty good letter, until it veers off into Marxism somewhere around this point:
"We urge the government to raise the capital gains exemption for primary producers to $1 million, as a way of allowing the transfer of farms from one generation to the next."
This is nothing but political pork, larded with an extra dollop of cornball populism. There is nothing economically or morally superior about investments in primary production compared to secondary or tertiary production. If you think that you are somehow safeguarding Canada's food supply, then why should owners of bakeries and grocery stores pay higher capital gains taxes than owners of family farms? Is the intention to grow wheat in Canada, then ship it to the USA for processing, so that Canadians can then drive south of the border to buy their groceries at a reasonable price? Such are the absurdities and distortions that result when politicians pretend that they are masters of the economic universe. And the moral universe.
"Improving Canada's infrastructure is central to raising our living standards. And we strongly support the transfer of additional resources to Canada’s cities. There is consensus on this and we want to see action in the Budget."
Taxing all Canadians to benefit a few is exactly how we got into the socialist quicksand that we are in. If once their federal taxes are cut, people in cities wish to vote themselves higher municipal taxes to pay for roads and sewers, then let them. At least the money will be spent locally, fairly and accountably. Sending federal money into cities is just lobbing a big, fat, expensive wad of pork to a bunch of idiot socialist mayors and councillors who already think that money grows on trees.
" ... the federal government continues to have a limited role in the support of education in Canada. While we respect provincial jurisdiction in this area, we feel the federal government can do far more to promote education in our country."
Again, once you cut taxes of ordinary Canadians, they will have a lot more money in their pockets to pay for education. Just because they didn't get themselves elected to parliament, they're not dummies. And if federal interference in education is effective, can Mr. Solberg tell me where all the (alleged) education money went for federal programs such as Millenium Scholarships and the billions in education transfers given to the provinces in the last 30 years or so? If he does know, perhaps he could explain how all that money vanished in between the part where the federal government cuts a cheque, and the part where it trickles into my kids' classrooms, which have no textbooks. A school is nothing but a heated room with a chalkboard, desks, books, a teacher and some students. A massive, multi-billion dollar program of taxation and multiple layers of bureaucracies can't possibly improve on a system in which Canadians are simply left alone to pay for the education that they want, with their own money.
"And when the federal government sets the rules and puts constraints over the provinces in how they manage affairs in their jurisdiction, this imbalance is created. We want to see the Budget contain measures that reduce the fiscal imbalance."
I have no idea what the preceding gobbledygook means. If he means "cut federal taxation and cut federal spending" then he should just say so. If this is some kind of code for "give the swing voters what they want" then he can go ahead and join the Liberal Party or the NDP for all I care. At least if I vote for them I know that it's a wolf in wolf's clothing.
"Finally, if the tragic events in Asia prove anything about our military capacity, it is that Canada’s must be boosted immediately."
The primary purpose of a nation's military is to protect it's own territory and citizens, not deliver aid to someone else. If you can't intercept rogue airliners (as happened on 9/11) or defend your territory against Denmark (fercrissake) then you have no sovereignty except that which your neighbors deign to grant you. I would appreciate it if my Conservative politicians would stick to a conservative view of government's role and not jump on a trendy headline which amounts to little else but exporting our nanny state for the (non-) benefit of others.
Posted by: Justzumgai | 2005-01-28 7:31:56 PM
I also believe that it is a pretty good letter. However I think that our military should have been mentioned more in the letter. They need more than air lift to do their jobs. All of there equipment has to be replaced and soon because if it isn't, our military will be wiped out. The military needs a long term spending plan that will boost it's budget so they can start to address the equipment problems. I personally don't really care about tax cuts and I'm just an average joe making a living and paying bills. In fact, I would be willing to pay a few dollars from my check if it help our military.
Thanks..John
Posted by: John Campbell | 2005-02-05 6:37:44 AM
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