Finance minister Ralph Goodale introduced legislation in Parliament today that would allow the government to allocate future unanticipated federal surpluses equally between cutting personal income taxes, spending on social and economic priorities, and reducing the federal debt.

The bill would apply to any surplus over the $3-billion Contingency Reserve that arises between the time the budget is presented and when the federal books are closed for each fiscal year. This would start with the current fiscal year, 2005–06, and the legislation would take effect for the next five fiscal years, up to 2009–10.

The proposed legislation would change the current practice whereby all of the surplus at the end of each fiscal year is applied exclusively to reducing debt. “Canadians have consistently made it clear that they want us to pursue a balanced approach to how we manage the tax dollars they entrust to us by allocating resources among tax relief, social and economic spending, and debt reduction. This legislation would extend that approach to future unanticipated surpluses,” said Goodale.

Under the proposed legislation, one-third of any surplus in excess of the Contingency Reserve would be allocated to spending priorities approved by Parliament. Another third of the unanticipated surplus amount would be used to deliver tax relief to all taxpayers in the form of a one-time credit. As well, this tax relief could be made permanent in following years by increasing the basic personal amount (the amount of income that Canadians may earn without paying federal income tax) and making corresponding changes to the other personal amounts — as long as this was determined to be fiscally sustainable.

“This approach confirms our commitment to further easing the tax burden of Canadians as resources allow. This is important to promoting productivity and competitiveness, and a better quality of life for all Canadians and their families in the years ahead,” Goodale said.

He added that the proposed legislation also confirms the government’s commitment to balanced budgets and sustained debt reduction. The bill would ensure that the first $3 billion of any surplus (the Contingency Reserve) — if not required for unanticipated economic and fiscal shocks — would continue to be dedicated to debt reduction. And one-third of any unanticipated surplus would also be applied to the debt.

He also explained that the legislation has been designed so that the government can allocate resources to affordable housing, post-secondary education, the environment and foreign aid. “The government will continue to move forward on those priorities as resources allow,” he said.