Better economically to spend $6 billion on infrastructure than on corporate tax cuts, says new study

ocufa.on.ca – publications.ontario_university_report – Data Check
Volume 5, Issue 13 – April 19, 2011.

The Canadian Centre for Policy Alternatives released a study last week showing that business investment has actually fallen over the last 30 years, despite governments’ cutting the combined federal-provincial corporate tax rate from 50 per cent in the 1980s to 29.5 per cent in 2010.

The report shows that before the tax cuts, fixed capital spending as a percentage of GDP was 12.7 per cent. Since then, such investments have fallen to 11.7 per cent of GDP.
“As a means of stimulating growth, employment and even private business spending, the historical evidence suggests the business tax cuts are both economically ineffective and distributionally regressive,” the report reads.

The federal Conservatives are promising to reduce federal corporate tax rates to 15 per cent in 2012 from 16.5 per cent this year and a further 18 per cent in 2010. The Liberals want to increase the rate to 18 per cent, climbing back a bit after slashing the federal rate from 28 per cent to 21 per cent between 2000 and 2004.

The Conservatives’ proposed tax cuts will cost the federal treasury $6 billion a year, writes the study’s author, Jim Stanford, an economist with the Canadian Auto Workers Union.  But, says Stanford, “We’d be much better off spending the $6 billion on public investment, which would ‘crowd in’ (via GDP effects) almost as much new private investment as would be stimulated by $6 billion in tax cuts.”

For Canada’s universities, this is no small matter. The Association of Universities and Colleges of Canada reports a total infrastructure backlog of $6.8 billion for Canada’s universities. The Council of Ontario Universities reports that Ontario’s growing enrolment will need $9.4 billion for new buildings over the next decade. But the province’s universities received only $1.1 billion in provincial and federal stimulus funding for infrastructure over the last two years.

And it’s not just university infrastructure that’s aging. Corroding bridges, leaking water mains, rutted roads, down-at-the-heel schools and hospitals, inadequate public housing, and insufficient childcare facilities are just some items on a long list of public infrastructure investments that government is not making — but should.

It’s heavy price to pay for corporate tax cuts that, in the main, further enrich the country’s wealthiest people, Stanford points out.

Sources: AUCC, Deferred Maintenance Fact Sheet, 2009; COU, Statistics, Capital; COU,Ontario Universities: Building and Sustaining the Knowledge Infrastructure, 2009.

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