Thank you for inviting me. Bonjour.
What I'm going to do is identify some of the specific tax changes that I think you'll be hearing about this afternoon and why I think they may be included in the package and what their impact on the economy might be.
I think you're going to see several specific tax changes--in fact, tax changes in most areas. As for personal income tax changes, I would say you can take these to the bank. The Conservatives will probably re-establish the levels for the lowest marginal rate that the Liberals left us with in the first part of the year, as well as for the basic personal amount. There is no way the Conservatives are going to want to go into an election with those two rates higher than where the Liberals left them.
On corporate income tax, the Conservatives have already said what they'd do. I think what they will say is that they will give a very high priority to getting down from the 21% to the 19% as soon as possible, fiscal conditions permitting.
On the GST, they'll remind us of the political commitment to that, and other than that, it's just too expensive to do anything very much very soon.
As for the marginal effective tax rate on investment, we'll probably hear quite a bit about that because that is what really affects productivity. Accelerated writeoffs for manufacturing equipment, possibly.
On capital gains, again they've had quite a few months to give a more precise, thorough think to those initial plans and may make a commitment to come out with a package that's affordable and manageable in budget 2007.
As for income trusts, I don't think they're going to address that specifically.
Tax policy issues. First is harmonization of taxes with the provinces. Here it's really the four western provinces and maybe Prince Edward Island that are at issue, but the main gains come from harmonizing with B.C. and Ontario. This is really a triple whammy win for the Conservatives and this is why they will put such a high priority on tax harmonization. Number one, if they do that, it does aid productivity. It can also address the fiscal balance question, because it gives some room to the provinces, if they wish to take it in a harmonized rate. As well, of course, it fulfills a political commitment they had.
On the fiscal balance and equalization issue, I think what we will see and should watch for is that they will make every effort to try to claim they've addressed that issue without spending very much incremental money on it, and we can talk about possible ways of doing that later.
On the issue of income splitting that you've heard quite a bit about lately, I wouldn't be surprised if they say they will undertake a study paper to be released later. I think that's a fundamentally sound policy, but it is expensive.
I think we're going to hear a lot about a productivity/economic growth agenda. That will probably be the theme of it, and I'll make just a couple of points on that.
Economists will tell you how important that is, that it's really the only route to sustained increases in our standard of living. Sometimes productivity/economic growth is thought of as the same thing as tax cuts, and whenever I address this I try to make the point that this is not the case. A lot of really important things on the program side can be done for productivity. Training and education infrastructure are important, and there are many important things on the regulatory side as well. So that's important.
Productivity/economic growth is always a matter of degree. Virtually any tax cut will have some impact on productivity. Often it's secondary. Sometimes it can even be negative. Even though he is probably going to talk long and emphatically about a productivity/economic growth agenda, it's always a question of balance between that and other issues that are done for equity programs.
I want to emphasize for people who are interested in a productivity/economic growth agenda that the key thing is, what does this tax change do for the incentive structure?
What we really need in this country are a lot more tax cuts that increase the incentive to work, increase the incentive to join the labour force, and increase the incentive to save, innovate, invent, and invest.
Those are really the questions you should be asking about what it does for that incentive structure.