Finance Minister Jim Flaherty presented the Tory government’s first budget today. Here are the highlights of the budget from a personal finance perspective:
- A 1% cut to the GST that will be effective Canada Day, July 1st, 2006. The amount you will save depends on how much you spend on goods and services that are subject to the GST. If you are planning to buy a new home or a new car or other big-ticket items, you will save a significant amount of tax.
- Parents with young children are also big winners in this budget. Starting July 1st, the Universal Child Care Benefit will give all families $100 per month for each child under age 6. More significantly, the benefit will be taxed in the hands of the spouse with the lower income and will not reduce other childcare benefits for lower income families.
- Unfortunately, there is an income tax hike in the budget. The current 15% tax rate on income up to $36,400 will be increased to 15.5%. At least, it is not going all the way back up to 16%!
- The increase in the basic personal amount is also being reduced from $700 ($500 for 2005 plus a further $200 for 2006) to $300. Similarly, the increase in the spousal amount is being reduced from $595 to $255 when the GST cut goes into effect. It appears as if the Tories are keeping slightly less than half of the income tax cuts enacted by the previous government.
- Employees will be getting a new tax break in the form of a Canada Employment Credit. The tax credit is worth $250 for this year and $1000 for 2007 and indexed to inflation thereafter. This means tax savings of $38.75 for 2006 and a more significant $155 for next year.
- There are miscellaneous tax cuts like the Children’s Fitness Tax Credit (up to $500), Tradespeoples’ Tool tax deduction (up to $500), Textbook Tax Credit ($65 per month for full-time and $20 per month for part-time students), Tax Credit for Public Transit Passes etc.
- The new government intends to maintain the dividend tax cuts enacted by the previous government.
- There are also corporate and small business tax cuts in the budget.
The bottom line is the budget contains roughly the same amount of personal income tax cuts (for employees) introduced by the Liberals in addition to the cut to the GST. For the tax year 2007, the income tax cuts currently in the books work out to roughly $350 for a taxpayer earning about $37,000. The new budget keeps roughly half the previous cuts and employees pay another $155 less in taxes, which works out to about $330. On top of that there is the 1% cut in the GST. If you are eligible for some of the other tax cuts, you are even farther ahead.
Other reactions:
- Rob Carrick, personal finance columnist for The Globe and Mail
- Jonathan Chevreau, columnist for The National Post
- The Frugal Canadian
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8 responses so far ↓
1 Canadian Capitalist // May 2, 2006 at 8:13 pm
I forgot to mention in my post, but the entire budget document can be found on the Department of Finance website.
Link.
2 0xcc // May 3, 2006 at 5:11 am
The one thing that sort of bothers me about this budget is the fitness tax credit thing. Why is this only for kids? Doesn’t it make sense to encourage everyone to be physically active and give some incentive to do that?
I like the fact that capital gains on property/stocks donated to charities aren’t taxed any more.
3 Rob Drimmie // May 3, 2006 at 6:21 am
Do you really think that the $1200 child care benefit makes anyone a “big” winner? I recognize that the issue is sensitive, I”m not trying to be all confrontational, I’m just interested how anyone wins big by it.
My first child is due in late August, so we’ll benefit from the outset, and while no one is going to complain about an extra hundred dollars per month, the real difference that it is going to make to our budget is minimal.
It’s minimal for me because we can already afford for my wife to stay home and look after our son and any future children we have. $100 extra per month will mean that my already well-off kids will have an even better future, because I’ll probably put the resulting extra cash into one of our existing investments.
It’s minimal for families where both parents need to work because the real cost of health care outside of Quebec is ridiculously high. It will ease the blow a little bit for each individual family, but it won’t be nearly as effective as it would be if pooled and cheap health care were made available.
It’s being made available under the geis of giving parents a choice, but what it is really doing is shooting out smoke. It’s not a good plan.
4 Canadian Capitalist // May 3, 2006 at 6:55 am
Rob: By “big winner” I am not saying that the extra money will solve their child care problems. All I am saying is in terms of the tax cuts in the budget, parents with young children get more money in their pocket due to the budget compared to other groups.
I disagree that giving money directly to parents is not a good plan. The Tory plan is roughly the same as the Liberal plan (in dollar terms) except that the Liberals planned to take about the same amount of money to create government-run child care spaces. That would have created 1 child care space for every 20 needed (I am not an expert on this and I am going by what I read in the media). We still would have the same problem with not enough childcare spaces.
Also, note that one income families with a stay-at-home spouse will get the entire $1,200 tax-free. For a family making $60,000 that is equivalent to a 2% tax cut. That is quite significant, in my opinion.
5 Humble Investor // May 3, 2006 at 7:45 am
Hi CC,
My thoughts on this budget - while the net effects of tax cuts will be roughly the same as previously enjoyed under the Liberals’ November fiscal update, the Conservative plan is exceptionally complicated, with its weaving together of changes to rates, personal amounts, new tax credits, etc. as a appeal to multiple social policy avenues. As a result, it isn’t easy to calculate one’s net gains, as many pundits are already agreeing.
Ironically, a little-covered story announced that in the minutes following the 4:00 EST announcement, an ‘Option 2′ plan was erroneously published to the Finance Ministry site. It contained a similar total tax reduction, but instead just cut the middle rates by a single percent. Wow. Easy, and perhaps too similar to proposed Liberal changes.
In fairness to those without children and other demographic groups not benefiting by targeted reductions, I have to suggest that a general rate cut (along the lines of the quickly-yanked Option 2) would also have been more equitable, though I clearly understand why it didn’t make the cut.
6 Canadian Capitalist // May 3, 2006 at 8:37 am
Hi HI: I couldn’t agree with you more on the complicated nature of this budget. Keeping the 1% cut and giving a GST cut would have been so much simpler. Now, you have to figure out all the special groups you belong to figure out how much you are saving. Enough to give most people a headache.
7 Doug // May 29, 2006 at 5:30 am
As an Americah, I envy you the fiscal discipline of the Canadian government, both Tory and Liberal.
While it is always possible that unforseen events will make it impossible to reach the long term debt-to-GDP ratio of 25%, I still admire the government for relentless looking to reduce debt and taxes. Look at the positive impact for the economy and the Looney.
Incidententally, I have found a site that tries to measure the total debt of Canada (including territories and localities). Its http://www.ndir.com/SI/education/debt.shtml
Not my site, but it reminds me of US government profligacy, since our clock is going in the opposite direction.
8 Canadian Capitalist » The Income Tax Increase // Jul 20, 2006 at 12:20 am
[...] I get paid bi-monthly and I recently received my pay stub for the first half of July. As you may recall, the Harper Government introduced a 1% cut in the GST starting July 1st and increased personal income taxes at the same time. Much ink has been spent debating whether the new tax cuts ultimately put more money in our pockets. [...]
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