Canada’s corporate tax policy sustains child poverty

TheStar.com – opinion/editorialopinion
Published On Sun Apr 10 2011.   Simon Rosenblum and Sid Frankel

During the federal election campaign, it is important to remember that Canada already has one of the lower corporate tax rates in the western world. Now the Conservatives want to lower it even further. Canada also has one of the highest rates of child poverty in the western world. Why can’t we be one of the lowest? It’s a question of priorities — fiscal priorities. Surely that is the nub of the question.

In case this strikes you as a little too glib, let’s examine the two issues more closely starting with corporate taxes. Ten years ago, Ottawa had a corporate tax rate of 22 per cent and kept reducing it so that the rate was 16.5 per cent before the Harper government recently lowered it even further. Was that necessary? To answer that, it would be prudent to compare with other OECD countries.

When making such comparisons it is advisable to look at the rate that combines both the federal rate and that of subnational jurisdictions (provinces/states). In the United States, the combined rate is 40 per cent; France — 35 per cent; Germany — 30 per cent; Britain — 28 per cent; and Australia — 30 per cent. What was the combined rate in Canada before the most recent reduction, you ask? Twenty-six per cent. What about Ireland at 12 per cent? Nothing to emulate there as it has turned into an economic basket case.

It is true that in this era of globalization corporate tax rates have declined. Like it or not, it is a fact of economic life whether you are in Britain or Sweden. Japan will be lowering its rate April 1 to 36 per cent. The evidence is clear: Canada needed to reduce its rate even further like we need a whole in the head.

But won’t it produce jobs?

Compared to what?

The most recent reduction in Canadian corporate taxes will by itself deplete the federal treasury by $6 billion annually and that figure will increase significantly as the economy grows over time. There is little doubt that you could spend $6 billion-plus on just about anything and produce more jobs than you might get from more corporate tax cuts.

Simply put, the Harper government faced no economic imperative in introducing more corporate tax cuts. It was a matter of ideology trumping sound economics.

Now, in order to pay for them, Canadians are going to have do without some important goods and services — what economists call social goods. Social goods like investments in our children which, while you can’t go to the mall to buy, make us richer as a society.

We write this as longtime campaigners in the battle against child poverty. Does that sound like some kind of disease? You bet it is. Child poverty can destroy lives; it limits a child’s educational opportunities and it causes a child to be less healthy. Not to mention it makes childhood a lot less pleasant.

Ten per cent of Canada’s children currently live in poverty. Yes, it’s much higher in the United States, but when did American society become the benchmark? Many western countries have child poverty rates below 10 per cent and some have brought the rate down to less than 5 per cent. Canada has got to do better. When millions of Canadians, despite working full-time, cannot lift their families out of poverty there is something terribly wrong in our country.

Are we saying that Ottawa should just take the $6 billion-plus to be wasted on additional corporate tax cuts and invest them in reducing child poverty in Canada?

We wish, but we are all too well aware that there are pressing needs in other areas such as health care, child care and post-secondary education. It would take about $5 billion to increase the current child tax benefit for low-income children up to a maximum of $5,400 per child. No, that won’t eliminate child poverty here, but it would reduce it by over 25 per cent and bring the Canadian rate down closer to others.

Might we suggest that somewhere in the vicinity of half the $6 billion-plus corporate tax reduction be spent to reduce child and family poverty? The other half of the money necessary to enhance the child tax benefit could and should be funded by our new Parliament over the course of the next term. This could be made possible by a combination of making the present tax system more progressive and an across-the-board small increase in either consumption or income taxes.

In a recent Angus Reid opinion survey, Canadians ranked poverty as the third most important issue facing this country. The current election will play a crucial role in determining what we as a nation do — or don’t do — in using scarce dollars wisely and humanely. It is no use paying lip service to having such priorities if we don’t follow through with the necessary expenditures. Let’s choose carefully and show that we care for our children — all of them.

Simon Rosenblum is a retired public policy analyst and steering committee member of Campaign 2000, a national anti-poverty organization. Sid Frankel is associate professor in the faculty of social work at the University of Manitoba and steering committee member of Campaign 2000.

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