CANADA : Ontario Gets a Tax Break, But Some Say They’ll Give It Back

TORONTO —  When the government of Ontario, Canada’s most populous province, this week announced a 15% cut in the provincial income tax rate--the first such reduction in a quarter of a century--unrestrained glee from taxpayers might have been expected.

But instead, reaction to the tax break has included selected refrains that, well, maybe Ontarians don’t really need that money back.

There is more at work here than the tendency of some Canadians to seek a dark cloud behind every silver lining.

The debate reflects the ongoing controversy over Ontario Premier Mike Harris’ political and economic agenda, which reminds many of the approach of the U.S. Republicans, especially House Speaker Newt Gingrich.

Harris was elected last June on promises to eliminate the province’s burgeoning budget deficit and cut income tax rates by 30%. His enthusiastic budget-slashing--particularly when targeted on the poor, as in a 21.6% reduction in welfare grants--quickly earned him the nickname “Newt of the North,” a sobriquet seized on by both admirers and detractors.

Harris’ knife has cut a wide swath, leading to $5.88 billion in spending reductions over the next three years. As a result, tuition has risen 15% to 20% at most universities. Dozens of public hospitals are expected to close or consolidate. The cost of prescription medicine in the government-funded health care system is increasing for the elderly. Fares on the Toronto transit system are among the highest on the continent. More than 10,000 of the province’s 81,000 government jobs are marked for elimination.

Harris’ goal is to make Ontario more attractive to business and to revive the province’s sluggish economy. Because Ontario is home to more than one-third of Canada’s population and accounts for 40% of the national economic output, policies here echo across the country.

But economists--and the public--are divided over whether Harris’ plan will work. And by delivering on his promise to cut income taxes--with a 15% rate reduction in the year beginning July 1 and the remaining 15% by 1999--Harris has left himself open to accusations that he is cutting government services to the have-nots while passing out tax breaks to the haves.

The Rev. Susan Eagle, a United Church of Canada minister in London, Ontario, certainly sees it that way. Eagle is circulating a petition calling on people to declare themselves “conscientious objectors” to the tax cut.

“Our objection is to cutting taxes at a time when there is both a deficit and when we’re cutting services to the disadvantaged,” she said in an interview. Eagle has about 3,000 signatures on her petition. But she and her allies already claim some credit for the government’s decision to skew the tax cut to more strongly benefit lower-income taxpayers.

Michael Valpy, a columnist for the Globe and Mail, meanwhile reports “disquiet about the tax cut” among Toronto’s academic, cultural and political elite.

“At every one of these forums I’ve attended . . . there was talk of setting up trust funds, of turning the money over to food banks, of donating it to charity,” he wrote.

Similarly, media accounts and radio call-in shows have spotlighted some unease that the tax cut might send the budget deficit spiraling uncontrollably upward again, leading to more painful reductions in public services.

Perhaps in response, the Harris government has provided a check box on tax forms to allow taxpayers to forgo their refund and apply it directly to reduction of the deficit and the accumulated debt.

No one knows whether this hand-wringing will actually result in many people waiving their rights to the tax cut or donating the money to charity. Because the rate reduction is being phased in gradually, most families will not reap an immediate windfall. When fully implemented, the 15% cut will mean an extra $720 a year for a family of three earning $50,000, in Canadian dollars.