Thank you very much.
Thank you kindly for having Canadians for Tax Fairness comment on this budget implementation bill.
Let me begin by commending the government for acting with the appropriate urgency to create a publicly accessible beneficial ownership registry. The need for this registry is acknowledged by members of all parties.
Efforts must now be turned to getting the provinces on board so the registry is truly pan-Canadian. To that end, we recommend the government fully fund the endeavour. Further, implementation should move ahead with all willing partners. Any laggards can be later enrolled.
There are several other components of Bill C-19 that C4TF will happily address during the Qs and As, particularly the luxury goods tax, the measures on housing speculation, the home accessibility tax credit and the tax measures for climate action.
However, today I want to address things missing from the bill: the one-time and ongoing surtaxes on the profits of banks and insurance companies, plus an updated general anti-avoidance rule to crack down on tax avoidance. We understand that these measures might require more consultation. However, we are concerned that there is a lack of urgency. Too much time allows for too much influence by well-resourced elites and their agents, leading to weakened, if not ineffective, measures.
During the pandemic, the government provided unprecedented amounts of money to support Canadians and stabilize our financial system. Unfortunately, deficit Chicken Littles are now misleading Canadians by claiming that these supports are responsible for inflation.
The standard inflation story claims that it is from “ too much money chasing too few goods”, but there is a much simpler explanation: Corporations are using their price-making power. This is not to discount significant external forces disrupting global supply chains and causing many costs to rise. However, our research found that the 2021 profit margin of Canada's publicly listed corporations almost doubled to nearly 16% from a prepandemic average of less than 9%. This strongly suggests that corporations are doing more than just passing along higher costs.
We have a trickle-up economy. That means some of the public money added to the economy inevitably found its way into corporate coffers. With corporations also boosting their profit margins, an ever-larger flow of public money ended up under corporate control. This overwhelmingly benefits the elite owners.
C4TF welcomes the surtaxes on banks and insurance companies; however, they are too narrow in application, set too high a threshold and are too low. While finance companies have seen the largest jump in profit margins—going from 14% to 22%— extraordinary profits are seen across many sectors. There is no good reason to limit the one-time tax to incomes above one billion dollars or the ongoing rate increase to incomes above $100 million. Also, a one-time extra 15% and the ongoing additional 1.5% are timidly low.
Successive governments have been cutting the corporate income tax rates for decades. From almost 40% in the 1980s, the current rate is a meagre 15%. We were promised that the cuts would result in more productive investment. In fact, investment out of corporate profits is lower now than it was in the 1980s.
Of course, corporations don't actually pay taxes at the statutory rate. In 2021, even while they were making record high profits, corporations were pushing their effective tax rates to record lows. They create and exploit loopholes to lower their taxes. We were pleased to see that budget 2022 included plans to close some of these loopholes.
We also welcomed more concrete steps towards strengthening the general anti-avoidance rule, also known as GAAR, which will empower the Canada Revenue Agency to crack down more forcefully on creative corporate accounting, but this process needs to be given greater urgency. Currently, the deck is heavily stacked against the CRA and its efforts to deal with tax avoidance by the largest corporations and wealthiest individuals.
Recent decisions by the Supreme Court against the CRA highlight the fact that the agency is working with one hand tied behind its back. We need an updated GAAR ASAP.
When the pandemic struck, it was widely accepted that we needed our public institutions to support Canadians. Corporations and their owners have nonetheless profited handsomely.
The need for robust investment in public programs only grows. A stronger excess profits tax, a higher corporate income tax rate and stronger GAR can reduce the excessive benefit going to corporations and help to create a more just, equitable country.
Thank you.