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Canada Must End ‘Era’ of Tax Cuts, McCallum Says

Canada must end its decade-long “era” of tax cuts in order to preserve the effectiveness of the federal government, said John McCallum, the opposition Liberal Party’s main economic spokesman.

McCallum, in an interview at Bloomberg’s Ottawa bureau, said additional tax cuts would undermine the government’s ability to play a “major role” in the economy. Canada, which had recorded 11 straight budget surpluses until last year, has cut taxes more than any other Group of Seven country over the past decade, according to government figures.

Canada’s Liberals, who have pledged not to raise taxes if elected, said last month they wanted to cancel a plan to cut corporate income taxes, claiming the country can no longer afford the reduction in revenue amid record deficits and growing needs for investments in education and innovation. Such a move would generate C$6 billion ($6 billion) in annual savings for the government, McCallum said.

“If you believe, as we in the Liberal Party believe, that there is a major role for the federal government in Canadian society and the Canadian economy than I think the era of tax cuts is over for the foreseeable future,” McCallum said today in an interview in Bloomberg’s Ottawa office. He said the Liberals would not raise taxes.

Later in a telephone interview, McCallum said he was opposed to broad-based tax cuts such as the corporate income taxes and cuts in the federal sales tax, not targeted tax cuts the Liberals have already proposed such as tax credits for companies to hire young workers and incentives for companies to create high-tech jobs.

Return to Balance

Harper’s government last month released a fiscal plan that eliminated tariffs for manufacturing imports and confirmed a schedule for corporate tax cuts that Canada claims will give it the lowest tax rate in the Group of Seven, even after a record deficit in the year that ended March 31. The governing Conservatives have pledged to balance the budget within five years by reducing spending for defense, international aid and government operations.

Federal government revenue as a share of output has fallen to about 14 percent of output, down from about 18 percent in 2000, according to data on the finance department’s Web site. Total government receipts, including provinces, has fallen to below 40 percent, from about 44 percent 10 years ago, the biggest decline in the G-7.

“You reach a certain level below which the federal government ceases to be relevant or have influence in policy,” McCallum said. “That’s an area where we would differ with the Conservatives.”

Freezing taxes also gives the Liberals fiscal room to craft a policy platform that distinguishes them from Prime Minister Stephen Harper’s governing Conservatives.

‘Critical Priority’

That platform will include a new supplementary national pension plan that would be voluntary and steps to make it easier for multiemployer pension plans to operate as part of efforts to increase retirement savings, McCallum said, adding the issue is a “critical priority” for his party.

Finance Minister Jim Flaherty is holding national consultations on ways to strengthen Canada’s pension system, and hasn’t excluded any options.

McCallum said Flaherty is stalling on the issue.

“The government is indulging in endless consultations, I don’t think they are serious at all about doing the supplementary Canada pension plan let alone a compulsory increase,” he said. “I think they will opt for the private sector solution alone.”

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