Corporate Taxes: Now Is Not the Time for Ontario to Cut Them

Toronto Star editorial

Low corporate tax rates didn't stop Caterpillar from fleeing London, Ont.

Low corporate tax rates didn’t stop Caterpillar from fleeing London, Ont. ERIC LALMAND/AFP/GETTY IMAGES

Ontario has a $16-billion deficit and since economic growth is projected to be slower than we’re used to, there is no easy way back to balance. No wonder public concern is mounting over how the Liberal government intends to raise revenues and reduce costs in its upcoming budget.

It’s a lot of ammunition for any opposition party to work with. And, this week, Progressive Conservative Leader Tim Hudak firmly picked his battleground: more tax cuts for big business.

On Wednesday, Hudak will lead a special debate in the Legislature to push the province to go ahead with another $800 million in corporate tax reductions. “In order to create jobs in Ontario, to make us a leader again, we need to continue to lower taxes on employers,” says Hudak.

News flash: Ontario’s corporate tax rate is already competitive with other provinces and well below those in the Great Lake states. At 11.5 per cent, Ontario’s rate is the lowest in the country but for three provinces at 10 per cent – British Columbia, Alberta and New Brunswick. And B.C.’s latest budget calls for its rate to go back up to 11 per cent in two years. (Ontario’s small businesses and beleaguered manufacturers already pay a lower rate than most corporations.)

There’s good reason why Bay Street has barely raised an eyebrow at the increasing suggestions that the provincial budget will halt plans to drop corporate tax to 11 per cent this July and 10 per cent next year. The substantial corporate tax reductions that have already taken place, elimination of the capital tax on business investment, and the introduction of the harmonized sales tax are already saving businesses $7 billion a year.

As far as taxes go, Ontario is more than competitive. A further reduction is unnecessary and unaffordable. The problems Ontario faces now include the high Canadian dollar and the ease of moving manufacturing to cheaper wage jurisdictions. Those cannot be tackled with the blunt instrument of corporate tax cuts.

Locomotive manufacturer Caterpillar didn’t leave Ontario, throwing 465 people out of work, because of the corporate tax rate. It left because it could slash wages in half in Indiana.

And contrary to Hudak’s claims that tax cuts create jobs, there is ample evidence that most businesses have hoarded their tax breaks and banked their profits rather than put them into job creation and productivity growth – the key to future prosperity.

Federal Finance Minister Jim Flaherty is also anxious for provinces to reduce their corporate taxes to 10 per cent so he can sell Canada as a jurisdiction with a low combined federal-provincial rate of 25 per cent. Being on the low end is useful, certainly. But Canada already counts itself at the bottom of the G7 nations. Even former Bank of Canada governor David Dodge says there’s no evidence that a change amounting to a couple of percentage points will make a difference to investment.

The far bigger concern is the possibility that ratings agencies might downgrade Ontario’s credit because of the deficit.

Ontario must adopt a balanced approach in its upcoming budget that makes inroads on the deficit and maintains vital public services and programs. Now isn’t the time for deeper corporate tax cuts.

*note: This article was originally published on Tuesday, February 28, 2012 in the Toronto Star. The original internet version can be found here.

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