Mixed reactions to NDP tax plan
The Toronto Star
By Josh Rubin
The NDP’s plan to raise corporate tax rates but cut the amount paid by small businesses was met with a mixed reaction by business groups and analysts on Wednesday.
The plan, unveiled by federal NDP Leader Jack Layton at a campaign stop in Oshawa, includes a new Job Creation Tax Credit of $4,500 per new hire.
It would also extend until 2016 a tax code provision that allows companies to write off the cost of new equipment over three years instead of the usual 14 years.
The tax credit can be applied to Canada Pension Plan and Workplace Safety and Insurance Board premiums.
The Canadian Federation of Independent Business, a lobby group for small and medium-sized businesses, gave the plan qualified praise.
“There are some things in there that will be good for our members, but I’m still curious about the total impact, because for a long time the NDP has been talking about increasing CPP premiums,” said Catherine Swift, president of the federation.
The Canadian Manufacturers and Exporters praised the extension of the writedown, known as the accelerated capital cost allowance, but stayed mum on the proposal to raise the general corporate tax rate to 19.5 per cent from the current 16 per cent.
The accelerated capital cost allowance was extended by two years in the dead-on-arrival budget presented by Finance Minister Jim Flaherty last week before the election was called.
“The accelerated depreciation rate is a critical element of our tax system that provides manufacturers cash up front at a time when they need to invest in new products, processes, and technologies,” CME president Jayson Myers said in a press release. “It is the most important tax measure for manufacturers and their employees who depend on investments in new technology to compete and grow ... ”
The proposal to drop the tax rate for small businesses — those earning $500,000 or less — to 9 per cent from the current 11, got a big thumbs-up from Swift. She pointed out that the difference between what big and small corporations pay has shrunk as the general corporate tax rate has been slashed from 29.1 per cent in 2000 to the current rate.
“This is good news for our members, because that differential was there for a reason. There’s a lot of evidence that the burden of compliance with red tape falls disproportionately on small and medium-sized businesses,” said Swift.
Before rates started falling in 2000, the spread between what the smallest businesses paid and the general corporate rate was 16 percentage points. Right now, the spread is 5.5 per cent, but the Conservative government had proposed dropping the main corporate rate to 15 per cent by next year, which would shrink the gap even further.
The head of a provincially funded think tank on economic competitiveness, however, panned the idea of a rise in the general corporate rate, and said the idea of smaller businesses paying a lower rate amounts to little more than political pandering.
“The differential only exists because everybody likes small businesses,” said Jim Milway, executive director of the Institute for Competitiveness and Prosperity. “I’d much prefer a broad-based, simple-to-understand system where everybody pays the same rate.”
Milway said raising the general corporate rate is also a bad idea, because it risks killing the very jobs the NDP’s tax credit is designed to create. “The evidence is that reducing corporate taxes creates jobs. The tax credit they’re proposing won’t do that,” he said.
The tax credit, he argues, would be a big drain on federal finances, and would only reward companies for hirings they’d already planned to make.
