Federal government could balance budget and reduce tax rates with 2.3% spending reduction over two years

If the federal government reduced program spending by only 2.3 per cent over two years and eliminated a host of tax expenditures, it could balance the budget and reduce personal income tax rates affecting most Canadians, finds a new
study published today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

“With modest spending reductions and tax reform, the federal government can create the fiscal room to provide tax rate reductions that would benefit most Canadians,” said Jake Fuss, director of fiscal studies at the Fraser Institute and co-author of A New Federal Fiscal Framework for Canada.

Specifically, if the government implemented this spending reduction—and eliminated 49 federal personal income tax expenditures (tax credits, tax exemptions, etc.), which do little to improve economic growth yet reduce government revenue—it could eliminate the three middle federal personal income tax rates (20.5 per cent, 26.0 per cent, 29.0 per cent) and reduce the top rate from 33.0 per cent to its previous level of 29.0 per cent.

As a result, with only two remaining rates, nearly all Canadians would pay a marginal personal income tax rate of 15 per cent. And the federal government could balance the budget by 2026/27.

“In light of Canada’s dim economic prospects and lack of tax competitiveness, the federal government should move away from the status quo and pursue a pro-growth fiscal strategy,” Fuss said.

“At a time when affordability is top of mind, it’s time for Ottawa to reduce tax rates and restore discipline to federal finances.”

Poor government policy has led to a significant deterioration in Canada’s federal finances over the last decade. The introduction of new and expanded government programs has caused federal spending to increase substantially, resulting in persistent deficits and rising debt.
Canada also maintains markedly uncompetitive personal income taxes relative to many other advanced economy jurisdictions. This hinders Canada’s ability to attract and retain highly skilled workers, entrepreneurs, and business owners.
Canada must make meaningful policy reforms by pursuing reductions in both federal spending and tax rates to address the current fiscal and economic challenges.
The federal government should eliminate 49 federal PIT tax expenditures and remove the three middle income tax rates of 20.5, 26.0, and 29.0 percent while reducing the top marginal PIT rate from 33.0 to 29.0 percent.
The federal government can introduce a comprehensive tax reform package and achieve a balanced budget by 2026/27 through reducing nominal annual program spending by 2.3 percent over a two-year period.
Returning to balanced budgets should be viewed as a starting point rather than the end goal.
Imposing a Tax and Expenditure Limitation (TEL) rule that caps growth in program spending at the rate of inflation plus population growth would be the next step for federal finances over the long-term.
This would allow for budget surpluses in subsequent years after achieving the initial balanced budget and ensure discipline in government spending for the foreseeable future.

Authors:

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Grady Munro

Policy Analyst, Fraser Institute

Related Topics:#FederalGovernmentSpending #FraserInstitute #GradyMunro #JakeFuss FederalTaxRate

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Trump threatens 50% tariffs on EU, 25% tariffs on iPhones

Published on May 23, 2025

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From The Center Square

By Brett Rowland

President Donald Trump threatened fresh tariffs on the European Union and iPhone maker Apple on Friday, prompting a sell-off on Wall Street.

Trump said trade talks with the European Union, which represents 27 nations, are “going nowhere.” The president said he was recommending a 50% tariff on imported goods from the EU starting June 1.

“The European Union, which was formed for the primary purpose of taking advantage of the United States on TRADE, has been very difficult to deal with,” Trump wrote on Truth Social. “Their powerful Trade Barriers, Vat Taxes, ridiculous Corporate Penalties, Non-Monetary Trade Barriers, Monetary Manipulations, unfair and unjustified lawsuits against Americans Companies, and more, have led to a Trade Deficit with the U.S. of more than $250,000,000 a year, a number which is totally unacceptable.”

The U.S. is the EU’s largest trading partner, buying 21% of the block’s exports, according to EU data.

Trump announced a slate of higher reciprocal tariffs on dozens of nations April 2. Seven days later, he suspended those higher rates for 90 days to give his trade team time to make deals. Since then, Trump signed two deals, a starter deal with the United Kingdom and temporary truce with China. The president has kept a 10% baseline tariff on all imports as talks continue. Goods from China face 30% import duties.

Trump said Friday that talks with the EU had stalled.

“Our discussions with them are going nowhere! Therefore, I am recommending a straight 50% Tariff on the European Union, starting on June 1, 2025,” he wrote on Truth Social. “There is no Tariff if the product is built or manufactured in the United States.”

Trump also threatened 25% tariffs on Apple, calling out the company’s CEO in a Truth Social post.

“I have long ago informed Tim Cook of Apple that I expect their iPhone’s that will be sold in the United States of America will be manufactured and built in the United States, not India, or anyplace else,” Trump wrote. “If that is not the case, a Tariff of at least 25% must be paid by Apple to the U.S.”

Trump has made tariffs the centerpiece of his foreign policy agenda during his second term. His on-again, off-again approach has frequently sent markets up and down with little notice, to the chagrin of those looking for stability in stocks.

Some business groups, including the U.S. Chamber of Commerce, have asked Trump to avoid tariff threats and work toward more free-trade agreements.

Trump’s focus on tariffs comes after years of inflation that frustrated American consumers and helped bring Trump back to the White for a second term. However, economists have warned that tariffs could push up prices for consumers.

Trump has said he wants to use tariffs to restore manufacturing jobs lost to lower-wage countries in decades past, shift the tax burden away from U.S. families, and pay down the national debt.

A tariff is a tax on imported goods. The importer pays the tax and can either absorb the cost or pass the cost on to consumers through higher prices.

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New fiscal approach necessary to reduce Ottawa’s mountain of debt

Published on May 21, 2025

Todayville

From the Fraser Institute

By Jake Fuss and Grady Munro

Apparently, despite a few days of conflicting statements from the government, the Carney government now plans to table a budget in the fall. If the new prime minister wants to reduce Ottawa’s massive debt burden, which Canadians ultimately bear, he must begin to work now to reduce spending.

According to the federal government’s latest projections, from 2014/15 to 2024/25 total federal debt is expected to double from $1.1 trillion to a projected $2.2 trillion. That means $13,699 in new federal debt for every Canadian (after adjusting for inflation). In addition, from 2020 to 2023, the Trudeau government recorded the four highest years of total federal debt per person (inflation-adjusted) in Canadian history.

How did this happen?

From 2018 to 2023, the government recorded the six highest levels of program spending (inflation-adjusted, on a per-person basis) in Canadian history—even after excluding emergency spending during COVID. Consequently, in 2024/25 Ottawa will run its tenth consecutive budget deficit since 2014/15.

Of course, Canadians bear the burden of this free-spending approach. For example, over the last several years federal debt interest payments have more than doubled to an expected $53.7 billion this year. That’s more than the government plans to spend on health-care transfers to the provinces. And it’s money unavailable for programs including social services.

In the longer term, government debt accumulation can limit economic growth by pushing up interest rates. Why? Because governments compete with individuals, families and businesses for the savings available for borrowing, and this competition puts upward pressure on interest rates. Higher interest rates deter private investment in the Canadian economy—a necessary ingredient for economic growth—and hurt Canadian living standards.

Given these costs, the Carney government should take a new approach to fiscal policy and begin reducing Ottawa’s mountain of debt.

According to both history and research, the most effective and least economically harmful way to achieve this is to reduce government spending and balance the budget, as opposed to raising taxes. While this approach requires tough decisions, which may be politically unpopular in some quarters, worthwhile goals are rarely easy and the long-term gain will exceed the short-term pain. Indeed, a recent study by Canadian economist Bev Dahlby found the long-term economic benefits of a 12-percentage point reduction in debt (as a share of GDP) substantially outweighs the short-term costs.

Unfortunately, while Canadians must wait until the fall for a federal budget, the Carney government’s election platform promises to add—not subtract—from Ottawa’s mountain of debt and from 2025/26 to 2028/29 run annual deficits every year of at least $47.8 billion. In total, these planned deficits represent $224.8 billion in new government debt over the next four years, and there’s currently no plan to balance the budget. This represents a continuation of the Trudeau government’s approach to rack up debt and behave irresponsibly with federal finances.

With a new government on Parliament Hill, now is the time for federal policymakers to pursue the long-ignored imperative of reducing government debt. Clearly, if the Carney government wants to prioritize debt reduction, it must rethink its fiscal plan and avoid repeating the same mistakes of its predecessor.