Thank you. It's good to be back.
I'd like to thank members of this committee for the opportunity to bring the Canadian Taxpayers Federation's perspective to your pre-budget deliberations. Once again, the federal government is facing a growing surplus. Big surprise. High taxes have Ottawa swimming in excess tax revenues. It is worth remembering that the surplus is not the result of spending restraint. Rather, it is a result of structural overtaxation.
The Canadian Taxpayers Federation is urging this committee and all parliamentarians to make the following three priorities central in this year's federal budget: meaningful reduction and elimination of wasteful spending; broadly based and fair tax cuts; and a legislated and planned debt reduction.
The federal government's surplus for the last fiscal year was $13.2 billion, up significantly from both the $8 billion forecast by the finance minister in the May budget and the original $4 billion projection that was reported in the 2005 budget. The surplus money will be used to reduce Canada's debt.
One reason for the larger surplus is that program spending was reduced last year by $1.1 billion versus the previous fiscal year. Finance Minister Jim Flaherty and Treasury Board President John Baird also identified budget savings totaling $2 billion over the next two years. The CTF applauds the government for embarking on streamlining of program spending.
The spending cuts are welcome, but more reductions are necessary, particularly when Ottawa spends an eye-popping $26 million a year on grants and contributions. A $1 billion trim is approximately half of one percent of Ottawa's program spending. In future years, the federal government must ensure that program spending is kept down and does not gallop ahead. As such, the Prime Minster's commitment to limit expenditure growth to a maximum annual amount of inflation plus population growth must be observed.
That we need and can afford tax cuts is obvious given multi-year and multi-billion-dollar surpluses. Budget 2006 fulfilled the government's election promise to immediately lower the GST by one point—a positive step—and offer a variety of targeted tax cuts to benefit some, but certainly not all taxpayers. Where the budget was regressive was in raising the first income tax rate from 15%, which is the rate Canadians paid in 2005, to 15.25% this year. Unfortunately, this income tax will jump again in 2007, to 15.5%.
Last year, we called on this committee to recommend that both the basic personal and spousal exemptions be raised to $15,000. In fact, the 2005 economic update outlined an accelerated timetable for increasing the BPE to $10,000 and the spousal exemption to $8,500. Regrettably, the 2006 budget revoked this schedule. As a result, Canadians are paying more income tax today than would otherwise be the case, although the introduction of the employment credit mostly offsets the increase.
This year we are pressing members to peg the two exemptions at $15,000 in four years. This will save all taxpayers $1,100 a year when fully implemented. In the context of growing surpluses, we are confident members will see this proposal's merit.
But it is not sufficient or even responsible for parliamentarians to only discuss cutting taxes for low- and modest-income Canadians. According to the OECD and even Canada's finance department, our personal income tax burden remains the highest of the G-7 nations. In fact, this standing has not changed in almost a decade. Broadly based tax relief is necessary to ensure all income earners benefit from lower taxes. The Canadian Taxpayers Federation is therefore advancing a “3 and 3” plan, whereby the top two personal income tax rates are reduced by 3%, phased in over three years from 29% to 26% and 26% to 23%.
Many said the previous government's 2000 to 2004 tax relief measures would dramatically reduce expected revenues, but they did not. I quote then Finance Minister Ralph Goodale: “The revenue growth we are now seeing is of a permanent and structural nature.” This should come as no surprise. Tax cuts strengthen the economy and result in more Canadians working and paying taxes. Until the Department of Finance reforms its modeling to include the stimulative consequences of cutting taxes, Ottawa will continue to underestimate its annual surplus by $5 billion to $6 billion a year.
And I have one last word on taxes, specifically the employment insurance payroll tax. For years Canadians heard opposition Conservative MPs lampooning the previous government for keeping rates higher than necessary to fund the EI program, a practice that was criticized by no less an authority than Canada's Auditor General. This tax was rightly labelled the job killer. Will the EI tax be lowered? Taxpayers will be watching and comparing promises made in opposition with the actions of the new government.
Lastly, on debt relief, the new Conservative government and previous Liberal government should be commended for paying down $81.4 billion of Canada's national debt over the last nine years. This progress has resulted in an annual savings of debt interest payments of over $4 billion a year.