"Today we are setting out a five-year tax plan so that individuals, families, small businesses and others will know for certain that their taxes will fall this year, next year and in the years to come."
Finance Minister Paul Martin
The 2000 budget proposes a five-year tax reduction plan that includes the most important structural changes to the federal tax system in more than a decade. The Plan will:
Additional key personal income tax measures of the Plan will:
Additional measures will help Canadian businesses to become more competitive internationally by making the tax system more conducive to investment and innovation. To ensure continued growth and job creation in a global economy that is increasingly knowledge-based, the Plan will:
The Plan, which places a special emphasis on the needs of families with children, will mean more money in the pockets of Canadians.
The Plan will provide immediate tax reductions that will grow over time.
In 2001 a typical:
By 2004 a typical:
The Plan proposes to restore full indexation of the personal income tax system effective January 1, 2000. This will:
stop benefit erosion – the real value of benefits such as the GST credit and the CCTB will automatically increase to offset inflation.
Automatic Reduction in the Tax Burden From Indexation
In 2000, Sharon earns $25,000. She also receives the GST credit and the CCTB for her son.
Each year, she receives a pay increase in line with inflation1 so that by 2004 her income totals $27,250.
In 2004, under a non-indexed tax system, she would pay net federal tax of $407, consisting of $2,122 of tax payable minus combined benefits of $1,715 (CCTB of $1,278 and GST credit of $437).
Under an indexed tax system, Sharon would instead receive a net benefit of $291 in 2004 – a net gain of $698 – as the benefits she receives would exceed the tax that she pays.
Sharon’s net gain of $698 results from her tax payable decreasing by $202 and her benefits increasing by $496 (a $385 increase in CCTB and a $111 GST credit increase).
1 Average annual inflation rate of 1.8 per cent is used over a five-year period.
Full indexation will help all Canadians, but will especially benefit low-income individuals as:
child tax benefits will automatically increase in line with inflation.
Indexation – Protection for Seniors
Public pension benefits under the Canada Pension Plan, Old Age Security (OAS) and the Guaranteed Income Supplement are already fully indexed to inflation.
With indexation, the age credit, the OAS reduction threshold and the GST credit will also be fully indexed to inflation, as will the rest of the personal income tax system, including the thresholds at which tax rates apply.
Middle-income Canadians will receive substantial tax relief under the Plan.
An average family of four will pay $600 less in income tax next year and $900 less a year when the lower rate is fully in place.
Some income now taxed at the middle tax rate will be taxed at the lowest rate, while other income taxed at the top tax rate will be subject to the middle rate.
This surtax and the 3-per-cent general surtax (paid by all taxpayers) were implemented in the 1980s to help reduce the deficit. With the deficit eliminated, the 1998 and 1999 budgets eliminated the general surtax.
By 2004, maximum annual benefits for lower-income families will be $2,400 for the first child and $2,200 for a second child. The maximum benefit for the first child in July 2000 will increase to $2,056 from $1,805, and will increase to $2,265 in July 2001.
There will be substantial increases in benefits for middle-income families. By 2004, a two-child family with income of $60,000 will see their CCTB more than double to $1,541 from $733.
Some typical examples of the tax relief Canadians will receive by 2004 as a result of the Plan are set out below, as are the first full-year tax reductions under the Plan.
Under the first full year of the Plan, a single parent earning $30,000 will receive a net federal tax reduction of $373, consisting of a $72 reduction in tax, a $281 CCTB increase and a $20 increase in the GST credit.
In 2004, this parent will receive a net federal tax reduction of $986, consisting of a $274 reduction in tax, a $663 CCTB increase and a $49 increase in the GST credit.
Under the first full year of the Plan, a one-earner family of four with income of $40,000 will receive a net federal tax reduction of $582 (17 per cent), consisting of a $347 reduction in tax and a $235 CCTB increase.
In 2004, this family will receive a total net federal tax reduction of $1,623 (48 per cent), consisting of a $911 tax reduction, a $637 CCTB increase and a $76 increase in the GST credit.
Under the first full year of the Plan, a two-earner family of four with income of $60,000 will receive a net federal tax reduction of $501 (almost 9 per cent), consisting of a $273 tax reduction and a CCTB increase of $228.
In 2004, this family will receive a total net federal tax reduction of $1,546 (27 per cent) consisting of an $812 tax reduction and a $734 CCTB increase.
Minimum $58 Billion Cumulative Tax Reduction Under the Plan
|Personal income tax||3.3||5.6||7.2||8.7||14.7||39.5|
|Corporate income tax||-0.1||0.3||0.5||0.5||2.9||4.0|
|Employment insurance (EI)||1.4||2.2||3.0||3.8||4.4||14.8|
|Total tax and EI relief||4.6||8.1||10.6||13.0||22.1||58.3|
The $58 billion in tax relief is an absolute minimum estimate of cumulative tax relief over five years in that it:
To the degree that these remaining actions are taken sooner – or tax reductions exceed those set out in the Plan – the cumulative tax relief would exceed $58 billion.
For example, the size of cumulative tax relief would increase by almost $2 billion if the final point reduction of the middle tax rate were to occur earlier on July 1, 2002, rather than in the final year of the Plan.
As another example, the size of cumulative tax relief would increase by almost $1.5 billion if corporate tax reductions (from the 27 per cent proposed to be legislated in January 2001) to 21 per cent occurred in the last two years rather than in the final year of the Plan.
Information is available on the Internet at http://www.fin.gc.ca/
You can also obtain copies of this brochure or other budget documents from the
Department of Finance Canada
300 Laurier Avenue West
P1 West Tower
Tel.: (613) 995-2855
Fax: (613) 996-0518