NCPA - National Center for Policy Analysis

Big Surpluses, Little Tax Relief For Canadians

February 19, 1999

Canada's federal government will run a large surplus in 1999 and increase spending on health care, according to the budget announced by Liberal government Finance Minister Paul Martin earlier this week. But there is no big, pro-growth tax cut, Fraser Institute analysts point out.

  • The amount of income exempted from taxes has been increased by C$175, and a 3 percent general surtax -- a tax on tax -- for those earning over C$50,000 has been eliminated.
  • Using questionable accounting gimmicks, the government claims program spending will remain constant, but analysts say it is actually a 6.5 percent increase over the past two years.
  • An additional C$ 11.5 billion will be poured into health care over the next five years; but since there are no fundamental changes planned to the universal, government- run health care system, experts project little change in the time Canadians spend waiting for health services.
  • Thus total spending by the federal government will be about 18.3 percent of gross domestic product in 1999 -- 3.7 percentage points higher than the spending rate that would maximize economic growth, say economists.

Economists say the tax burden is partly responsible for the country's lagging productivity and slow growth. Over the last decade, for example, Canadian income per person grew by 7 percent while it grew by 17 percent per person in the United States. Furthermore, if Canadian productivity had grown at the U.S. rate since 1979, Canada's income per person would be C$7,000 higher today, or C$28,000 higher for a family of four.

Source: news release, "Budget Reaction from The Fraser Institute," February 16, 1999, Fraser Institute, 4th Floor, 1770 Burrard Street, Vancouver, B.C. V6J 3G7, Canada, (604) 688-0221.


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