Canada Announces C$60 Billion in Tax Cuts by 2013 (Update2)

Canadian Finance Minister Jim Flaherty announced C$60 billion ($63 billion) in tax cuts through 2013, as surging oil prices and record corporate profits led to higher-than-expected revenue growth.

The goods and services tax will be lowered to 5 percent from 6 percent, effective Jan. 1, Flaherty said today in Ottawa in his semi-annual fiscal update. Canada also will accelerate corporate-income tax cuts and raise personal exemption rates.

Prime Minister Stephen Harper, emboldened by surveys that show support for his minority Conservative Party government growing, is pushing ahead with an agenda of tax cuts and tougher crime laws. Liberal Leader Stephane Dion, whose party opposes cutting the sales tax, said today he wouldn't try to topple the government over the measures.

``Harper is trying to set the stage to have fulfilled his promises, should there be an election in the short-term,'' said Antonia Maioni, director of the McGill Institute for the Study of Canada.

The measures may also be aimed at embarrassing the opposition Liberal Party, which is behind in polls and fundraising and has said it will give Harper legislative leeway to avoid an election. The tax measures will go to a vote in Parliament tomorrow and a defeat would trigger an election.

Harper is ``continually showcasing the Liberal Party weakness in not being able to stand up for its principles,'' Maioni said. Dion's statement today makes the measures' passage almost certain, even as the separatist Bloc Quebecois Party and the socialist New Democratic Party said they will vote against them, leaving the Liberals with the balance of power.

Tax-Cut Details

The cut in the goods and services tax will be the second since Harper came to power, allowing the government to follow through on a 2005-2006 campaign pledge to bring it to 5 percent from 7 percent. The two reductions will cost C$34.2 billion through the fiscal 2013 budget, Flaherty said.

The government will lower the country's corporate-income tax rate to 19.5 percent next year, one percentage point more than planned, from just over 22 percent today. Effective this year, personal taxes for the lowest income tax bracket will be cut by half a percentage point to 15 percent and personal exemption rates for all taxpayers will be raised to C$9,600.

Because they are retroactive, the two measures will give instant tax relief as payrolls adjust to the new rates.

The government will still have enough money to post a surplus of C$11.6 billion in the fiscal year ending next March, with C$10 billion of that windfall going to pay down debt, Flaherty said.