The Canadian federal budget for the fiscal year 2006–2007, was presented to the
House of Commons of Canada
The House of Commons of Canada (french: Chambre des communes du Canada) is the lower house of the Parliament of Canada. Together with the Crown and the Senate of Canada, they comprise the bicameral legislature of Canada.
The House of Common ...
by
Finance Minister
A finance minister is an executive or cabinet position in charge of one or more of government finances, economic policy and financial regulation.
A finance minister's portfolio has a large variety of names around the world, such as "treasury", " ...
Jim Flaherty
James Michael Flaherty (December 30, 1949 – April 10, 2014) was a Canadian politician who served as the federal minister of finance from 2006 to 2014 under Conservative Prime Minister Stephen Harper.
First elected to the Legislative Assembly ...
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 tax
An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
cuts for middle-income earners, and $1,200-per-child childcare payment (the "Universal Child Care Benefit") for Canadian parents.
Prime Minister
Stephen Harper
Stephen Joseph Harper (born April 30, 1959) is a Canadian politician who served as the 22nd prime minister of Canada from 2006 to 2015. Harper is the first and only prime minister to come from the modern-day Conservative Party of Canada, ...
called the bill an indication of what Canadians should expect from his
Conservative
Conservatism is a cultural, social, and political philosophy that seeks to promote and to preserve traditional institutions, practices, and values. The central tenets of conservatism may vary in relation to the culture and civilization i ...
minority government. Many aspects of the bill were criticized by opposition parties. The
Liberal Party
The Liberal Party is any of many political parties around the world. The meaning of ''liberal'' varies around the world, ranging from liberal conservatism on the right to social liberalism on the left.
__TOC__ Active liberal parties
This is a li ...
and
New Democratic Party
The New Democratic Party (NDP; french: Nouveau Parti démocratique, NPD) is a federal political party in Canada. Widely described as social democratic,The party is widely described as social democratic:
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indicated that they would not support the budget, while the
Bloc Québécois
The Bloc Québécois (BQ; , "Québécois people, Quebecer Voting bloc, Bloc") is a list of federal political parties in Canada, federal political party in Canada devoted to Quebec nationalism and the promotion of Quebec sovereignty movement, Que ...
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, no Members of Parliament rose to speak. Thus, the budget was declared passed by unanimous consent a week ahead of schedule.
Highlights
Initiatives to be delivered over periods ranging from one to five years:
*$1.1 billion for the
Canadian Forces
}
The Canadian Armed Forces (CAF; french: Forces armées canadiennes, ''FAC'') are the unified military forces of Canada, including sea, land, and air elements referred to as the Royal Canadian Navy, Canadian Army, and Royal Canadian Air Force.
...
.
*$2 billion in general spending cuts.
*The creation of the Canada Employment Credit, a tax credit to be worth approximately $155 per employed Canadian by 2007.
*$1 billion for emergency preparedness, specifically against a potential
flu pandemic
An influenza pandemic is an epidemic of an influenza virus that spreads across a large region (either multiple continents or worldwide) and infects a large proportion of the population. There have been six major influenza epidemics in the last ...
.
*A decrease (in law) in the lowest income tax rate from 16% to 15.25% for 2006, and then to 15.5% for subsequent years.
*Increases to the amount that an individual can earn before paying personal income tax from about $8,300 to $10,000 by 2010.
*A reduction of the general corporate income tax rate from 21% in 2007 to 19% in 2010, and elimination of the 3% corporate income surtax after 2006.
*$160 million for hiring new police officers at the
Royal Canadian Mounted Police
The Royal Canadian Mounted Police (RCMP; french: Gendarmerie royale du Canada; french: GRC, label=none), commonly known in English as the Mounties (and colloquially in French as ) is the federal police, federal and national police service of ...
.
*$3 billion to reduce the government's debt.
*No funding for the
Kyoto Protocol
The Kyoto Protocol was an international treaty which extended the 1992 United Nations Framework Convention on Climate Change (UNFCCC) that commits state parties to reduce greenhouse gas emissions, based on the scientific consensus that (part ...
.
*No funding for the
Kelowna Accord
The Kelowna Accord is a series of agreements between the Government of Canada, First Ministers of the Provinces, Territorial Leaders, and the leaders of five national Aboriginal organizations in Canada. The accord sought to improve the educatio ...
.
*$150 million in new taxes on
income trusts
An income trust is an investment that may hold equities, debt instruments, royalty interests or real properties. They are especially useful for financial requirements of institutional investors such as pension funds, and for investors such as retir ...
.
Goods and Services Tax cut
The Conservative government promised to lower the federal
Goods and Services Tax from 7% to 6% in its first budget and to lower it to 5% by 2011. During the 2006 election campaign, the
Martin Martin may refer to:
Places
* Martin City (disambiguation)
* Martin County (disambiguation)
* Martin Township (disambiguation)
Antarctica
* Martin Peninsula, Marie Byrd Land
* Port Martin, Adelie Land
* Point Martin, South Orkney Islands
Austral ...
government proposed income tax cuts for lower-middle-income earners. The
Liberals claimed that the GST cut would effectively result in a tax increase for those in the lower-middle-income
bracket
A bracket is either of two tall fore- or back-facing punctuation marks commonly used to isolate a segment of text or data from its surroundings. Typically deployed in symmetric pairs, an individual bracket may be identified as a 'left' or 'r ...
. 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 received widespread support among 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 Bloc Québécois (BQ; , "Québécois people, Quebecer Voting bloc, Bloc") is a list of federal political parties in Canada, federal political party in Canada devoted to Quebec nationalism and the promotion of Quebec sovereignty movement, Que ...
, the budget passed third reading without dissent on June 6, 2006, when the members of the Opposition 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 challenged the reasons for the change in tax regime announced by Flaherty and disputed the Harper-government assertion that the Trust structure led to a loss of tax revenue because of trust conversions in his research paper
Income Trusts and Tax Leakage: Is there a problem?Analyst Gordon Tait also raised concerns about the lack of consultation and misconceptions surrounding the change in tax policy on Trusts i
The Inconvenient Truth About Trusts
Analyst Cameron Renkas refuted the Department of Finance's assertion that the United States and Australia took action to shut down flow-through structures. In his research paper
Digging Deeper he gave 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 outlined his concerns regarding the claim of tax leakage. In his October 31, 2006 policy statement, Finance Minister Jim Flaherty said, "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 did not document his allegation or cite any research to back up his claim. Mr. Fortin's pape
A Recipe For Tax Lossgave several examples of 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 also cited several flaws in the Conservative government's policy in his research pape
Deep Dive into Tax Issues: Canadian Pensioners Taxed Twice on Canadian Corporate Dividends In the report, Mr. Lever asked:
* 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
John McCallum (born 9 April 1950) is a Canadian politician, economist, diplomat and former university professor. A former Liberal Member of Parliament ( MP), McCallum was the Canadian Ambassador to China from 2017 to 2019. He was asked for h ...
, the Liberal Finance critic 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 as saying, "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 to 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 had the support of the
Jack Layton
John Gilbert Layton (July 18, 1950 – August 22, 2011) was a Canadian academic and politician who served as the leader of the New Democratic Party (NDP) from 2003 to 2011 and leader of the Official Opposition in 2011. He previously sat on To ...
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, th
TSX Capped Energy Trust Indexlost 21.8% in market value and th
TSX Capped Income Trust Indexlost 17.6% in market value by mid November 2006. In contrast, th
TSX Capped REIT Index which is exempt from the "Tax Fairness Plan," gained 3.2% in market value. According to the Canadian Association of Income Funds, this translated into a permanent loss in savings of $30 billion to Canadian Income Trust Investor
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
BNN Bloomberg (formerly Business News Network and Report on Business Television) is a Canadian English language specialty channel owned by Bell Media. It broadcasts programming related to business and financial news and analysis. The channel is h ...
, former Conservative Alberta Premier
Ralph Klein
Ralph Philip Klein (November 1, 1942 – March 29, 2013) was a Canadian politician and journalist who served as the 12th premier of Alberta and leader of the Progressive Conservative Association of Alberta from 1992 until his retirement in 20 ...
criticized PM
Stephen Harper
Stephen Joseph Harper (born April 30, 1959) is a Canadian politician who served as the 22nd prime minister of Canada from 2006 to 2015. Harper is the first and only prime minister to come from the modern-day Conservative Party of Canada, ...
and Finance Minister
Jim Flaherty
James Michael Flaherty (December 30, 1949 – April 10, 2014) was a Canadian politician who served as the federal minister of finance from 2006 to 2014 under Conservative Prime Minister Stephen Harper.
First elected to the Legislative Assembly ...
for their mishandling of the
Income Trust
An income trust is an investment that may hold equities, debt instruments, royalty interests or real properties. They are especially useful for financial requirements of institutional investors such as pension funds, and for investors such as retir ...
issue and for not keeping their word on Income Trust taxatio
According to th
Canadian Association of Income Trust Investors 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
See also
*
Domestic policy of the Harper government
Several policies regarding interior and domestic issues in Canada were planned and adopted by the Cabinet of Canada, Cabinet of Prime Minister of Canada, Canadian Prime Minister Stephen Harper, after he came to office as the head of a minority g ...
Notes
External links
Transcript of Parliamentary proceedings surrounding confusion during third reading and passage of C-13
{{DEFAULTSORT:2006 Canadian Federal Budget
Canadian budgets
Federal budget
2006 in Canadian law
2006 government budgets