The C.D. Howe Institute on today offered a federal “shadow” budget that projects tighter spending, lower taxes and an $8.9 billion surplus for the coming fiscal year.

Finance Minister Ralph Goodale will deliver his first budget in two weeks.

The shadow budget’s authors, Finn Poschmann and William Robson, said under their plan, the federal government’s annual surplus would grow from $8.9 billion to $17.1 billion by 2008/2009.

The shadow budget takes aim at the $46 billion employment insurance surplus. It calls for the phase-out of employee EI premiums by 2008/2009, which is projected to cut taxes on labour income by $6.3 billion. The change would make the EI program entirely employer funded.

The shadow budget also proposes a new round of tax cuts. It calls for a 1% cut in the lowest personal income tax rate in 2005, and a further one 1% cut in all rates in 2007.

For investors, the budget proposes introducing tax-prepaid savings plans. Unlike like the case with an RRSP, workers wouldn’t get a tax deduction for a TSPS contribution. However, the contributions would grow in a tax-sheltered environment and there would be no tax to pay when the funds are withdrawn in retirement.

It also proposes lowering the tax rate on dividends from public companies.

The shadow budget also calls for the elimination of the federal tax credit on labour-sponsored investment funds, which it said would save taxpayers about $100 million annually.

http://www.cdhowe.org/pdf/backgrounder_80.pdf