Raise ’em, leave ’em or cut ’em.
On the issue of how much the Ontario government should tax big corporations, experts say it was no surprise to see where the four provincial parties planted stakes in the ground last month, as the leaders attempt to woo voters ahead of next month’s election.
The background and the numbers
The general corporate income tax rate in Ontario has been 11.5 per cent since mid-2011 (down from the 14 per cent rate imposed prior to July 1, 2010). Together with the Northwest Territories, Ontario boasts the lowest tax rate for big businesses in Canada.
The two arguably most progressive parties, the Ontario NDP and Green party, don’t see that as a good thing. Both are in favour of raising corporate taxes and using the extra revenues generated to bankroll other proposed government services.
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Green Leader Mike Schreiner wants to see corporate taxes increase somewhere from one to 1.5 percentage points to fund a lower payroll tax on small businesses. Meanwhile, the provincial New Democrats, under leader Andrea Horwath, would increase the rate to 13 per cent — accompanied by a hike on personal income taxes paid by those who make $220,000 a year or more.
“Let’s ask those at the very top to pay a bit more,” Horwath said at the launch of the NDP’s costed election platform April 16. “It’s absolutely the right thing to do.”
Horwath’s proposal would cause Ontario’s corporate tax rate to surpass those in British Columbia, Alberta, Saskatchewan, Manitoba and Quebec — but it would remain lower than those in the Atlantic provinces. The party estimates its tax proposals would raise an extra $2 billion or so in revenues.
Progressive Conservative Leader Doug Ford wants to move in the opposite direction. Claiming that the Wynne government has “decimated” the province’s manufacturing economy, Ford pledged last month to cut the corporate tax rate to 10.5 per cent from 11.5 per cent.
“We’re going to create the environment to make sure this province is the most prosperous province anywhere in Canada,” Ford said. “We’ll make sure we have the most competitive region in North America to do business.”
The Liberals, however, want to stick with the status quo.
While the most recent provincial budget acknowledged that recent tax cuts in the United States “may lesson Ontario’s competitiveness and weaken business investment,” the Liberals did not touch the corporate tax rate – arguing that Ontario is still leading economic growth in Canada. (The Wynne government, however, lowered the small business tax rate in January in the face of its minimum wage hikes.)
Ontario Premier Kathleen Wynne said Ford’s tax plan simply shows he’s only looking out for the interests of wealthy people.
“He … says he’s for the little guy,” Wynne said the day after Ford’s corporate tax announcement. “The reality is that lowering that corporate tax rate will help the big guy.”
Reaction and analysis
While they agree that the parties’ different corporate tax proposals are in line with their brands, experts have mixed opinions on whether the tax rate should change; the intended impact of the tax plans; and on the status of Ontario’s competitiveness.
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Ford is of the view that a boost in job creation and business investment comes down to reducing taxes. But Sheila Block, senior economist at the Canadian Centre for Policy Alternatives, insisted it’s not as simple as that. She argued there are many others factors at play which may make Ontario an attractive environment for investment — including public services, an educated workforce, access to research, livability and expected returns.
“Take an example … oil prices,” Block said. “When oil prices were taking their deep dive, it didn’t matter what the corporate income tax would be, … you’re not going to be having that investment in the oil patch because the returns aren’t there.”
Block argued that lowering corporate income taxes over the past decade or two “hasn’t had the desired impact” and that her organization has repeatedly called for an increase in corporate taxes so that governments can better finance those public services that, in turn, can help attract business investment.
“Doug Ford might have a very genuine concern about rebuilding the manufacturing base in Ontario; he might have very legitimate concerns about wanting to increase employment as well,” she said. “But I do think … he has the wrong policy prescription to address it.”
Meanwhile, Amin Mawani — an associate professor at York University specializing in taxation — said he’s not convinced by the argument that raising corporate taxes will rake in a lot more cash for Queen’s Park. He argued that rejigging the rate by a percentage point or two “wouldn’t make much of a difference.”
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Ian Lee, an associate professor at Carleton University’s Sprott School of Business in Ottawa, echoed Block’s comments about having to consider multiple factors in an investment decision. That said, he argued that recent data he’s tracking does show Ontario is losing its competitive edge, especially in light of the tax cuts across the border that U.S. President Donald Trump ushered in late last year.
Lee insisted Trump’s tax overhaul has “nullified” the advantage Canada used to hold against the Americans and because of that, he’s in favour of lowering the corporate income tax rate in Ontario — as well as federally — at this time.
“Our attractiveness in terms of bringing in foreign capital has diminished, … it’s declining,” he said.
Lee also argues that out of different types of government taxation, corporate income taxes are the “the worst of all” because they have a “distortionary effect on the economy.”
While corporate taxes can garner a lot of attention on the campaign trail and make for good sound bites, all three experts say they don’t see the issue as one swaying voters at the ballot box.
Mawani said factors like colossal hydro bills and the Wynne government’s controversial minimum wage increases are having more of an immediate impact on the cost of doing business in Ontario — and thinks those issues will take centre stage during the election.
At the end of the day, Lee said the competing views the provincial parties have put forward represent an “age-old debate in democracies” about wealth distribution that he describes as “equity versus efficiency.” That debate, however, has gotten increasingly polarized in Ontario since the 1990s, he said.
“It sounds cliché but it comes down to a debate over wealth redistribution versus creation,” Lee said in an interview. “The Liberals and NDP are much more focused on the redistribution of wealth to address equality, which they believe is much more important an issue. Whereas the people on the other side are much more focused on, ‘Are we creating the wealth in the first place in order to redistribute?’
“Of course, the question is striking the balance.”
— With a file from The Canadian Press