Ontario election: Okay, really – can politicians create jobs?
Kathleen Wynne, Tim Hudak and Andrea Horwath are all promising you jobs. Lots and lots of jobs.
Are they for real?
But their rosy prognostications remain somewhat divorced from reality, economists say.
“These are political numbers. Their purpose is to convey a political message,” says Burkard Eberlein, associate professor of public policy at York University’s Schulich School of Business.
“No serious academic would say, ‘I can predict that on a ten-year horizon this will result in X number of jobs. Nobody would do that because we simply can’t. It’s guesswork.”
Governments can give companies money and they can change their jurisdiction’s investment climate. But the job market’s affected by a multitude of other factors: How do you know whether those jobs you “created” would have existed anyway? What was the opportunity cost of your investing money, or cutting taxes, in one area rather than investing it elsewhere?
“The problem is,” Eberlein said, “governments think they can buy jobs. It’s not like in the supermarket: here’s the price tag.”
One obvious example is cutting corporate tax rates. On the one hand, it may seem like common sense that cutting the cost of doing business would make the province more attractive to business.
But Joseph D’Cruz, a University of Toronto professor specializing in competitiveness, said it’s a “long stretch” to think cutting tax rates and lowering hydro rates will produce a million jobs.
“Cutting taxes will help a little bit, but job creation depends on a whole number of factors of which taxes area only one,” he said.
D’Cruz characterized PC leader Tim Hudak’s reliance on low corporate taxes as “almost like blind beliefs that are not supported by the facts.”
Tony Dean, a professor at the University of Toronto specializing in public policy suggested tax cuts don’t necessarily lead to increased employment.
In many cases, studies have shown, companies just hang onto the extra cash rather than spend it hiring more people, unless they were going to hire those people anyway, in which case the cut serves little purpose.
An economic report by the Task Force on Competitiveness led by Roger Martin found that years of corporate tax cuts by the Liberal government led to hoarded cash.
And analysis done by the Globe and Mail with data from Statistics Canada suggests much the same. The newspaper looked at data from 2001 to 2011 and found investments in machinery and equipment (which is supposed to create jobs) fell despite cuts to corporate taxes.
The companies did take in more money however. The newspaper reported the companies included in the analysis added $83 billion to their cash reserves since 2008 – but that money isn’t being spent.
“If Tim Hudak believes that will happen, then he is hoping that there will be a dramatic change in the results we’ve seen so far,” Dean said. “Canada has cut taxes dramatically… and Stats Canada tells us that we’re not seeing investment arising that.”