Budget days: The issue of corporate taxes
The Windsor Star
By The Windsor Star
The Harper and McGuinty governments are set to deliver their respective budgets next week—Ottawa on Monday, Queen’s Park on Thursday. And there’s little question that the key motive in both fiscal outlines will be shoring up re-election prospects.
However, for the national economy, and particularly Ontario’s struggling manufacturing sector, that would be bad news. The focus of both budgets should be on creating incentives for businesses to invest and increase their overall competitiveness.
That was the clear message from the Institute for Competitiveness and Prosperity in its fourth annual report last week, which goes as far as calling for the eventual elimination of corporate income taxes.
For many people, that suggestion is the equivalent of blasphemy—the ultimate sop to big business. But the Institute’s arguments deserve to be viewed with an open mind—everyone should at least concede that the current tax regime isn’t doing enough to create manufacturing jobs. And the goal of the Institute isn’t to simply create an easier tax ride for business, but to also close the per-capita “prosperity” gap between Canadians and Americans—now a whopping $9,200.
Roger Martin, chairman of the Institute and dean of the Rotman School of Management, believes Canada needs to begin addressing its corporate tax structure quickly. He feels that corporate taxes will no longer exist in 20 years as countries pull out all the stops to attract increasingly mobile capital.
“I think we’re in a game where (corporate taxes) are going to go away,” says Martin. “Where companies decide to operate and make money is influenced by the tax regimes. I don’t want us to be the last to comply with that.”
As things stand, Canada has a long way to go. In 2006, the combined federal-provincial corporate income tax rate was 34.6 per cent. That compares to 12.5 per cent in Ireland and 17.5 per cent in Hong Kong.
If governments concentrated on taxing dividends and personal income, Martin believes that it would encourage businesses to invest, boost wages and lower prices. The cumulative effect would be to boost productivity and begin closing the prosperity gap with the U.S. That would leave about $11,900 more in personal disposable income for the average Canadian household.
Although Ottawa is likely to do little if anything on the corporate tax side in the coming budget, recent Liberal and Conservative federal governments have been moving in the right direction—in 2000 the corporate tax rate was 28 per cent and today it is 21 per cent. By 2011 it will be 18 per cent.
The news isn’t as encouraging in Ontario. Last year, the C.D. Howe Institute concluded that “tax competitiveness has improved across Canada at the federal and provincial levels, but Ontario remains at the back of the class with the highest effective corporate tax rates in the land.”
Among the provinces, some of the most significant reductions in the effective corporate taxes over the past 10 years have been B.C., going to 21.2 per cent from 27.6, Alberta to 8.9 from 14.1 and New Brunswick to 16.3 from 20.9. Ontario’s rate stands at 28.2 per cent.
Both the Harper and McGuinty governments have a responsibility to craft fiscal policies in their coming budgets that will encourage investment and promote a strong business sector. That can start with competitive corporate taxes.
