Canada budget opts for permanent tax cuts

Tue Jan 27, 2009 4:57pm EST
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By Louise Egan

OTTAWA (Reuters) - Canada's government pledged C$20 billion ($16.3 billion) worth of permanent personal income tax cuts over five years as part of an economic recovery plan presented in its budget on Tuesday.

Ottawa also promised tax measures for businesses costing C$1.9 billion over the same period, from 2008-09 through 2013-14.

Some of the personal tax measures target low-income earners, which was a key demand of the opposition Liberals for supporting the minority Conservative government's budget. If the budget is not passed in Parliament an election may be called or the Liberals may try to form a coalition government.

Under the plan, the basic personal amount workers must earn before taxes kick in would be raised by 7.5 percent in 2009 from 2008 levels.

The upper threshold of the first two income tax brackets would be raised by 7.5 percent each, allowing more people to be taxed at the 15 percent rate rather than the 22 percent rate. Likewise, more people will fall into the 22 percent rate from the 26 percent rate.

Combined, the government estimates these measures will cost C$470 million in 2008-09 and C$1.9 billion in 2009-10.

Similarly, the upper income limit for families to be eligible for an existing child tax benefit would be raised.

Building on another previous initiative, the government said it would permanently beef up its so-called working income tax benefit -- a refundable tax credit that supplements earnings of low-income earners. It proposes adding C$580 million in benefits to the program annually through 2013-14.   Continued...