Tories hint at tax cuts for those earning under $80,000

The latest leak in what has become a famously leaky budget process suggests the Conservative government plans to announce tax cuts for people with incomes under $80,000 a year.

"We've had a lot of information trickle out of the last couple of days," the CBC's Margo McDiarmid reported from Ottawa Tuesday as the capital awaited the official budget text. "We know there'll be about $13 billion of programs, including infrastructure programs.

"But new information has come out overnight on what also will be in the budget. We're going to hear that there will be permanent tax cuts for people who make under $80,000 — so, permanent broad-based tax cuts for the middle class we've heard the government talking about in the past — and also it plans to speed up corporate tax cuts."

Such moves could lead to a showdown with the opposition Liberals, whose leader, Michael Ignatieff, argues that broad-based, permanent cuts are a bad idea at this time.

"Some targeted tax measures to help the most vulnerable, I could support," Ignatieff told CBC News on Tuesday. "But if this then gives us a huge deficit problem which will take a decade to fix, that's not a good trade-off for Canadians, and they'll be concerned about it, as I am."

It is no secret that the government of Prime Minister Stephen Harper, faced with an economy mired in downturn and opposition parties poised to push it from power,  will unveil a budget Tuesday that will see a return to deficits for the first time in a dozen years.

When Finance Minister Jim Flaherty stands up in the House of Commons at about 4 p.m. ET to deliver his budget speech, many of the key elements of his plan will have been unveiled in advance.

Through a series of ministerial announcements and briefings by government officials, Canadians will have already heard or read much of what is likely to be coming. Pre-announcing much of the budget appears to be a Conservative strategy intended to win public support and ensure the survival of their minority government.

The deficit is expected to hit $34 billion for the upcoming fiscal year, and $30 billion the year after as the government spends money to stimulate the economy.

The country has not run a deficit since 1996-97, when it ended the fiscal year more than $8.7 billion in the hole.

While the government is forecasting two years of large deficits, it has also said the budget will include a plan to return the country's finances to the black within five years.

The government's promises also include:

• $7 billion for infrastructure, including $4 billion for provincial and municipal projects.
• $2 billion for social housing.
• $1.5 billion in aid for laid-off workers.
• $1 billion for communities hit hard by the economic downturn.
• $550 million for farmers.
• $150 million for the forestry sector.
• $160 million for arts and culture.

Many of the announcements have focused on spending, and questions remain as to whether the government might do something on taxes.

"They've indicated some of the measures will be permanent, which gets me thinking [of] some measures aimed and targeted at lower-income Canadians," said TD Bank economist Derek Burleton.

"They may raise the basic personal exemption which protects taxpayers against paying taxes at the low end of the income spectrum, but I wonder if they're going to give a holiday on the GST," he said.

The budget comes with the Canadian economy mired in a slowdown.

Last week, in its latest update on the state of the economy, the Bank of Canada predicted a contraction of 2.3 per cent annualized for the fourth quarter of 2008, followed by a deeper drop of 4.8 per cent for the first three months of 2009 and a drop of one per cent in second quarter of this year.

However, the bank sees a rebound to positive activity by the third quarter of the year, when it forecasts two per cent growth and 3.5 per cent expansion in the last three months of the year.

Against that backdrop, the government must win the support of the opposition parties for its budget.

The Liberals, under former leader Stéphane Dion, and the NDP agreed last December to topple the government by voting against it in a no-confidence vote and then try to form a governing coalition. The coalition also had the backing of the separatist Bloc Québécois.

Harper instead asked the Governor General to prorogue Parliament, bringing an end to the parliamentary session before the vote could occur. Parliament has been shut down for close to two months.

NDP Leader Jack Layton has already said he will vote against the government's latest budget because he believes a coalition would serve the country better.

However, Liberal Leader Michael Ignatieff, who succeeded Dion, has not appeared keen on that idea. He has said he wants to see what's in the budget, and won't say whether he will support it until Wednesday.

In Tuesday's question period, before the budget was tabled, the opposition chiefs expressed little faith in Tory pledges.

Ignatieff charged that the government previously said infrastructure was a priority but "failed to get $2 billion in commitments out the door that would have created jobs and helped rebuild communities."

"How can Canadians trust the prime minister not to fail them again?" he asked. "What assurances can he give us now that the promised money will actually get out the door this time?"

Harper said his government had increased infrastructure spending in each year it has been in power. There will be "new good news" in the budget, he said, "and I urge the opposition to join us, to undertake this action and get that money out and get this economy going."

Layton said Harper doesn’t know what to do about the economy because "the actions we need right now run counter to his beliefs."

"For the last two months, while he was locking the doors here in Parliament, 100,000 people were thrown out of work," the NDP leader said.

"The fact is that he denied that there was a problem altogether. Can the prime minister explain to Canadians now why, despite overwhelming evidence to the contrary, he denied that there was a problem with the economy for so long?"

Harper responded by quoting one of Layton's own MPs calling for his party to examine the budget before voting against it, which the prime minister said was "wise advice."