I am not an economist, let’s just get that straight immediately. So I don’t spend many hours agonising over the state of the economy, pour over the minute changes in interest rates or fluctuating foreign exchange rates. I am an accountant. Accountants, other than during forecasting/budgeting season, do not spend much time with their proverbial crystal balls trying to foretell the fiscal future — the economists and analysts do that. What I can comment on is Income Tax.
When I joined Potato Inc the Corporate Income Tax Rate for a corporation functioning in the province of Ontario in 2008 was 33.5%. As of January 2012 it is now 27%. The theory from the two levels of government (both Federal and Provincial) is that by lowering business taxes this should help to stimulate the economy by making Canada and Ontario itself a much more attractive place to invest.
The premise to two-fold. Those companies looking to setup a branch-plant internationally could look to Canada and think “hmmm yes, the taxes are very attractive for doing business, yes I’ll build a business here in Canada instead of in XYZ”. And those companies already in-situ by having their taxes lowered this gives them more monies to expand and reinvest. The goal being that this would stimulate the economy and translate into more jobs for the average worker. This hasn’t happened.
Where I work, at Potato Inc, it has enjoyed having its taxes lowered – it means more monies it can use for re-investment (theoretically). What the reality is that the shareholders, senior executives and senior management have flourished with ever expanding renumeration (share options, dividends, bonuses, huge payrises) while the average worker has gotten nothing — there are people at Potato Inc who haven’t had a payrise in 5+ years, yet the senior executives have had their pay packages re-evaluated and tinkered with.
There are recent cases in the news where American companies, such as Caterpillar, took advantage of various tax incentives offered by the government to swoop in & gut Canadian companies to move operations south of the border. All perfectly legal, though highly shady moralistically.
Then there’s the issue of Vale, a Brazilian mining company, purchasing Inco up in Sudbury Ontario. What ensued was a huge battle between the employees and the foreign owner – strikes. Inco is one of the major employers in Sudbury, so it can only be imagined what this battle did to the local economy.
Governments cannot lower corporate tax rates and expect private industry to say “wow, I have all this surplus cash now, I will now hire more people and share my windfall with the average worker”. No the response has been and will probably remain “wow, I must be doing an amazing job, I deserve a huge bonus for saving the company this much money” .. even though the savings came as a gift from the government, not their own hard work.
I am not advocating hiking up the tax rates to try to get companies to pay more. What I would advocate for is closing some of the available loopholes which companies take advantage of which we the average taxpayer cannot. We cannot deduct the full 100% value of our rent paid to landlords. We cannot claim the full value of our medical expenses. And we cannot claim the full value of any charitable donations we make. But guess what, corporations can claim all these costs fully. They can claim the utilities they pay out against their income, thereby reducing their taxes paid. I wish I could claim my cellphone bill, internet and cable bill, but I cannot as I am not a corporation.
Close some of the loopholes, raises taxes slightly — as Canada’s tax rates are amongst the lowest in the Industrialised World, and a slight increase from 27% to even 29% won’t unduly hurt the private sector. And tax stock options.