Cancel corporate tax cuts to deal with deficit

TheStar.com – Opinion/Editorial Opinion
Published On Sun Jul 11 2010.  John Cartwright President of the Toronto and York Region Labour Council

We are told that the G20 leaders left Toronto agreeing on one main thing — an austerity agenda to reduce deficits within three years. We have all heard about the government budget deficits in Canada. The feds and the province have massive shortfalls because of the global recession and money for infrastructure stimulus. Both finance ministers have appeared numerous times to sternly warn that belts will have to be tightened and spending reduced if we are to tackle the new fiscal reality.

But there is a disturbing other side to the picture that politicians seem to feel is impolite to mention in mixed company. That is that both the federal and Ontario governments are implementing a series of corporate tax cuts that deplete public revenues by billions of dollars every year. So while ordinary Canadians are being told there isn’t enough money for transit or education or health care, the wealthiest companies are getting bonus tax cuts.

Even companies that send jobs overseas are rewarded with the lower tax rates. The figures are staggering. Stephen Harper’s corporate tax cuts will end up depleting federal revenues by nearly $14 billion every year. How many nurses could be hired for just a fraction of that amount? How does that compare with our country’s transit needs, the resources needed to tackle climate change or the partisan cuts to international aid efforts?

The Conservatives claim that by cutting tax rates we will help to attract business to this country. The flaw in that argument is simple — we already have one of the lowest corporate income tax rates in the industrialized world. A recent report by global business consultant KPMG compared 10 key countries, and found that Canada’s rate was the lowest. We are at 12.2 per cent — far less than the U.S. at 28.3 per cent or Mexico at 28 per cent. When you add other business levies, the difference between us and the Americans widens even further. So why the rush to give up revenues that most people would want to be used for vital services?

Some might suggest that it is driven by the same ideology that led to cutting the GST with its massive loss of funds. They would say that the same Jim Flaherty who served as a loyal minister under Mike Harris simply wants to shrink government. Or, even more cynically, to create a crisis that will provide the excuse to sell off public assets. Let’s not forget that the outrageous sale of Highway 407 provided the cash needed to balance a provincial budget savaged by tax cuts. Consumers have been paying through the nose ever since.

The trouble with blaming everything on the Conservatives is that some of the provinces are also reducing corporate taxes. Ontario’s will end up costing $2.4 billion each year, yet we keep hearing there is not enough money to keep the provincial commitment on TTCTransit City.

According to Finance Minister Dwight Duncan, Ontario already provides lower business tax rates than any of our neighbouring Great Lakes jurisdictions.

We need to ask the inconvenient question: Is his desire to make them even lower the right priority for the people of Ontario?

This is where it is useful to look at what business experts really say about competitiveness. The same KPMG report states that corporate taxes are a minor element in deciding locations for investment. Issues such at transportation, facilities (buildings), utilities and labour rates are the key cost factors that are considered. But overwhelmingly in business reports, the availability of a well educated, skilled workforce and the quality of life for executives and their families loom large in investment decisions. There is no good reason to make business taxes lower when we are already the lowest. All it does is provide room for more executive bonuses — like the $8 billion in bonuses given to the elite of the Canadian banks in 2009.

In a bizarre twist of fate, some of the money saved by American companies operating in Canada simply gets transferred to the U.S. Treasury. Their rules require that foreign operations pay taxes at no less than the U.S. rate, or make up the difference to Uncle Sam. Studies by economist Erin Weir show that money not collected by Ottawa is instead taxed by Washington for the benefit of Americans. Instead of helping to solve the massive infrastructure backlog in communities across the country, Flaherty is giving away billions to his U.S. counterpart.

You will forgive us then, when working people object to politicians telling us that we have to sacrifice our wages or pensions for some “greater good.” The rules keep changing, but always to the benefit of global corporations instead of working families. We have watched unemployment insurance being gutted, good jobs shipped offshore, and bad trade deals undermine our standard of living. More and more, young people are finding work only through temp agencies or short-term contracts. There is something wrong with this picture — the priorities need to change.

Our society faces some serious challenges that call for a robust public response. We can start making the right choices by cancelling the outrageous corporate tax cuts and investing in vital public services instead.

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