The federal government is moving ahead with its planned cut to the GST from 6% to 5%, along with other personal and corporate rate cuts, and added debt reduction.

Federal finance minister Jim Flaherty announced the measure in presenting the government’s 2007 Economic Statement. “Given the uncertainty in the global economy, now is the time to provide additional tax relief for Canadians,” said Flaherty. “Our strong fiscal position provides Canada with an opportunity that few other countries have—to make broad-based tax reductions that will strengthen our economy and leave more money in the pockets of ordinary Canadians.”

At the heart of the Tax Relief Package is an additional 1-percentage-point reduction in the GST, effective Jan. 1, 2008. This tax cut fulfills a government campaign commitment, although it has been widely panned by economists who say the government should be cutting income taxes, not consumption taxes.

The government is also proposing additional tax relief for individuals and families by: increasing the basic personal amount to $9,600 retroactive to Jan. 1, 2007. The basic personal amount will be increased to $10,100 on Jan. 1, 2009. This proposal will provide Canadians with an additional $2.5 billion in tax relief in 2007 and 2008. And, it is reducing the lowest personal income tax rate to 15% from 15.5% retroactive to Jan. 1, 2007.

On the corporate side, it is: reducing the general corporate income tax rate to 15% by 2012, starting with a 1-percentage-point reduction in the rate in 2008 beyond the already scheduled reductions; and, reducing the small business income tax rate to 11% in 2008, one year earlier than scheduled.

“We are putting business taxes on a five-year track downward to help stimulate further economic growth and create even more jobs,” said Flaherty. “We are ushering in a new era of declining business taxation in Canada. It will be a steady, predictable decline that businesses can count on and can plan on.”

With these reductions, Canada’s general federal corporate income tax rate will fall by one-third between 2007 and 2012, and Canada’s corporate tax rate will become the lowest among the major industrialized economies, it says.

The government also announced it is planning additional debt reduction of $10 billion this fiscal year, for a total of more than $37 billion in debt relief since coming to office. As a result, the federal government’s debt-to-GDP ratio—its debt load as a share of the economy—is expected to fall below 25% by 2011–12, three years ahead of the original target.