The Canadian federal budget for the fiscal year 2006–2007 was presented to the House of Commons of Canada by Finance MinisterJim Flaherty on May 2, 2006. Among the most notable elements of the federal budget were its reduction of the Goods and Services Tax by one percentage point, income taxcuts for middle-income earners, and $1,200-per-child childcare payment for Canadian parents. Prime Minister Stephen Harper called the bill a message of what Canadians should expect from his Conservative minority government. Many aspects of it were criticized by opposing parties. The Liberal Party and New Democratic Party indicated that they would not support the budget, while the Bloc Québécois indicated that it would vote in favour of it. On June 6, 2006, the budget was introduced for a third reading in the House of Commons. Amid an apparent mix-up and confusion, no MPs rose to speak. Thus, the budget was declared passed by unanimous consent a week ahead of schedule.
Highlights
These initiatives are to be delivered in periods that vary from one to five years:
The Conservative government promised to lower the federal Goods and Services Tax from 7% to 6% for the first budget and to lower it to 5% by 2011. During the 2006 election campaign, the Martin government proposed income tax cuts for lower-middle income earners. The Liberals have claimed that the GST cut would effectively result in a tax increase for those in the lower-middle income bracket. The Conservatives argued that the GST cuts would benefit all Canadians, including low-income earners and those outside the workforce who do not pay income tax. The first GST cut went into effect on July 1, 2006, and no provinces have raised provincial sales tax as a demonstrable result. Nova Scotia raised the provincial sales tax 2 points as part of deficit-fighting measures under the Dexter government; this was put in place on July 1, 2010. The second cut was later announced in the 2007 Throne Speech and officially confirmed on October 30, 2007 during an economic statement update on the country finances.
Reception
The budget was met with dissent by the Liberal and New Democratic parties and mostly positive reception from the Bloc. The Liberals and NDP voiced disapproval over the Conservatives following through on their election promise to replace the Liberals child care policy with their own, and for replacing Canada's $4 billion environmental policy with a $2 billion "made in Canada" plan of their design. The budget was met with widespread support amongst the business community and polling indicated that a clear majority of Canadians approved of the budget.
Vote
While it initially appeared that the only way the Conservatives' budget would pass would be with the support of the Bloc Québécois, the budget passed third reading without dissent on June 6, 2006 when the members of the Opposition accidentally failed to stand after the Deputy Speaker of the House called for debate. Because there were no speakers for the Opposition, the budget was declared passed with unanimous support and no recorded vote and thus forwarded to the Senate for approval. This marked the first time in Canadian Parliamentary history where a government's budget passed unanimously on the third and final reading. On September 25, 2006, the Conservative government announced that within the fiscal year, there was a $13.2 billion surplus that will be used to pay down the country's debt.
Income Trusts Controversy
Economist Yves Fortin has challenged the reasons for the change in tax regime announced by Flaherty and disputes the Harper government assertion that the Trust structure has led to loss of tax revenue because of trust conversions in his research paper. Analyst Gordon Tait has also raised concerns about the lack of consultation and misconceptions surrounding the change in tax policy on Trusts in Analyst Cameron Renkas refutes the Department of Finance assertion that the United States and Australia have taken action to shut down flow-through structures. In his research paper he gives a perspective on how the United States taxes publicly traded flow-through entities and Master limited partnerships, the US equivalent of Canadian Income Trusts. In a January 12, 2007 paper Yves Fortin outlines his concerns regarding the claim of tax leakage. Finance Minister Jim Flaherty stated in his October 31, 2006 policy statement "If left unchecked, these corporate decisions would result in billions of dollars in less tax revenue for the federal government to invest in the priorities of Canadians, including more personal income tax relief" but Minister Flaherty has not documented his allegation nor has he cited any research to back up his claim. Mr. Fortin's paper gives several examples on how the tax on income trusts could lead to a loss in government tax revenue, not a gain. Analyst Dirk Lever wrote on January 15, 2007, "We cannot understand why any Canadians would support double taxation of retirement benefits - it affects all of us eventually". Mr. Lever has also cited several flaws in the Conservative government's policy in his research paper . In the report Mr. Lever asks:
Why are Canadian Pension Benefits are taxed twice on Canadian Corporate Dividends?
Why are foreign investors allowed more favorable tax treatment than Canadian retail investors?
Special hearings by the Finance Committee commenced January 30, 2007. John McCallum, the Liberal Finance critic has called on Minister Flaherty to explain the reasoning behind the change in Income Trust Tax policy. In a February 8, 2007 news release John McCallum is quoted "Essentially they released close to a thousand pages of public documents, not one of which brings Canadians any closer to understanding what type of information or calculations led the Minister break his election promise and tax income trusts, either the Minister is in contempt of the committee’s motion or he had absolutely no data from his own department before shutting down the sector and destroying tens of thousands of Canadians’ life savings. The first possibility is disturbing, the second is deplorable." The Conservatives have the support of the Jack Layton and the NDP on this issue. The government postponed the tax from taking effect until 2011 for existing trusts. The government argued that it could now allow giant corporations to convert as proposed by BCE for its Bell Canada subsidiary, "...a move that would save it $800 million in tax by 2008." Subsequent to the October 31 announcement by Flaherty, the lost 21.8% in market value and the lost 17.6% in market value by mid November 2006. In contrast, the , which is exempt from the 'Tax Fairness Plan', gained 3.2% in market value. According to the Canadian Association of Income Funds, this translates into a permanent loss in savings of $30 billion to Canadian Income Trust Investors . Harper later mentioned that this was "the toughest decision for the government". The Canadian Press voted the Harper Government and Jim Flaherty 'Business Newsmaker of 2006' for the announcement to tax Income Trusts on Halloween. In a July 9, 2007 interview on Business News Network, former Conservative Alberta Premier Ralph Klein criticized PM Stephen Harper and Finance Minister Jim Flaherty for their mishandling of the Income Trust issue and for not keeping their word on Income Trust taxation. According to the the change in tax rules cost investors $35 billion in market value. Stephen Harper specifically promised "not to raid Senior's nest eggs" during the 2006 Federal Election.
