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Fraser Institute: Cut taxes, balance budget

A Fraser Institute senior economist, unperturbed by the last six months, is calling for Stephen Harper’s Conservatives to bring in a balanced budget with lower taxes.

Niels Veldhuis, in a January 12 Fraser Institute news release, called on the government to emulate newly cost-conscious Canadian households:

“There is certainly room to trim wasteful spending. A recent study by European Central Bank economists found approximately 25 per cent waste in Canada’s public sector. Our government needs to follow the lead of many Canadian households and begin by trimming the fat, not taking on more debt.”

Veldhuis also offered four specific suggestions for reducing taxes:

Reduce middle and upper personal income tax rates: the middle two income tax rates (22 per cent and 26 per cent) and the top rate (29 per cent) should be reduced by one percentage point in each of the next two years, 2009/10 and 2010/11. Reducing middle and upper personal income tax rates would be a good first step to a single-rate personal income tax.

Eliminate the Capital Gains Tax: the capital gains tax is one of the most damaging taxes in Canada in that it encourages the owners of capital to hold on to their investments and has a detrimental impact on entrepreneurship by reducing the return that entrepreneurs, venture capitalists, and other investors receive from risk-taking, innovation, and effort.

Accelerate and build on the reduction in the corporate income tax: over the next four years, the general corporate income tax rate should be reduced to 11 per cent, the preferential rate levied on small businesses. This will significantly improve the incentives for business investment and will eliminate the barrier, or disincentive, for small businesses to grow beyond $400,000 (the threshold for the preferential rate).

Facilitate the harmonization of provincial sales taxes with the GST: Harmonization with the GST would exempt business inputs from provincial sales taxes and improve the incentives for business to invest in productivity enhancing machinery and equipment.

Veldhuis went on to say:

“Various levels of government have spent more than $182 billion on corporate welfare over the past 12 years. Throwing more money at troubled industrial sectors merely transfers tax dollars from healthy businesses to unhealthy businesses and delays the day of reckoning.”

The Hook will look for Mr. Veldhuis’s response to the details of the budget when they emerge.

Crawford Kilian is a contributing editor of The Tyee.

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