Lower taxes for the poor, TD Bank says

TheStar.com – Business/Companies
Published On Thu Nov 25 2010.   Laurie Monsebraaten, Staff Reporter

As the country emerges from recession, Ottawa should consider cutting taxes for low-income Canadians who are being hit by both economic restructuring and an inequitable tax system that “discourages people from participating in the workforce,” says TD Bank President Ed Clark.

“The shape of the recovery will not leave Canadians equally well-off,” Clark told the Canadian Club in Montreal Thursday. “There is a clear risk that lower income Canadians will bear the brunt of the slow recovery.”

Lower income Canadians already face much higher marginal tax rates than higher-income Canadians, he noted, adding that high employment taxes also hit lower-income earners harder.

“We should encourage people to work — not discourage them,” he said in his speech marking the bank’s 150th anniversary in Quebec.

If Canada is tempted to sustain fiscal stimulus for longer than now anticipated, Ottawa should consider fixing this “structural issue” rather than extending or increasing government spending, he argued.

“We should not always assume that fiscal stimulus means more government spending. It could also mean lower taxes for lower income Canadians.”

Clark did not recommend any specific tax cuts in his speech. But in an interview he suggested Ottawa may want to consider raising the Working Income Tax Supplement (WITB) and the threshold at which people start paying taxes.

Increasing child benefits and changing welfare rules that financially punish people entering the workforce are other areas for governments to explore, he said.

A parliamentary committee report this month and a senate committee report last December both recommended improvements to the WITB, child benefits and the welfare system. Numerous anti-poverty groups have also argued that putting more money in the hands of low-income Canadians is good for the social and economic health of the country.

“I’m not saying it isn’t a complicated problem,” Clark said. “But I at least want to get it on the menu of things you look at when you are trying to make choices.”

Clark said Canada’s healthy banking sector and balanced budgets before the recession, left the country in relatively good financial shape.

And Ottawa’s plan to pay down the deficit in five years is “about right.”

But he said Canada shouldn’t let its “relative better performance” coming out of recession leave the country complacent.

Canada should lever its competitive advantage by tackling longer-term structural issues related to the country’s standard of living, Clark said.

In addition to a tax system that disadvantages lower-income Canadians, Clark said Canada needs to improve productivity and address government spending that is rising faster than revenues.

“The fact that Canada did all right during the downturn shouldn’t mean we don’t have to discuss any of the big issues because we aren’t immune to some of the other global forces such as population aging,” he said.

“Let’s debate it and be honest that we are going to have to make choices,” he said. “If I’m advocating anything it’s don’t forget the lower income Canadians when we have this debate.”

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