Mr. Speaker, I believe I left off where I was talking about the Conservatives and their corporate tax cuts. I was relating it to the CEOs.
Let us look at what the Prime Minister has done for his CEO friends. The Prime Minister plans to cut corporate income taxes from 22.12% in 2006 to 15% by 2012 leaving Canada with the lowest corporate tax rates in the G8. By doing so the Prime Minister also deprived the treasury of billions of dollars that could have been invested in Canadians, like lifting seniors and children out of poverty.
Last year, with the corporate rate at 19% and most Canadians trying to cope with the serious recession, Canada's big five banks had profits totalling $15.9 billion. In 2009 the government's tax cuts to that point, 3.12%, fattened those profits by $496.1 million. No wonder the banks had enough money to pay enormous bonuses to their senior executives.
The government's justification for cutting the income taxes on profitable businesses is that the cuts improve competitiveness and lead to investment, innovation and jobs. The evidence is almost entirely to the contrary.
Across the board corporate income tax cuts are a completely ineffective way to grow an economy. They are a blunt weapon of a government without vision. They result in growing inequality, declining public services, and an economy that serves the market, not people.
The Conservatives believe that helping out these corporate CEOs will help create jobs:
Lower corporate income taxes result in more business investment by both domestic and foreign firms operating in Canada, which leads to new and better jobs and increased living standards for Canadians.
That was from the Department of Finance in 2008.
Really? Let us look at the historical context. In 2000 then Liberal finance minister Paul Martin cut corporate income tax rates by one quarter, from 28% to 21%, to be phased in over five years.
The Conservative government has continued those cuts from 21% in 2007 to 18% today. The budget confirmed that the government is ignoring NDP advice and will further reduce the rate to 15% by 2012.
Those cuts have taken hundreds of billions of dollars out of the revenues that pay for things like health care, education, infrastructure and fighting climate change. Why did the government do it? It says that such cuts create jobs through investment and innovation in our future economy. But do they really?
It also argues that we need these cuts to be competitive. That is another canard. The evidence suggests these assertions are misleading and wrong-headed. Who says this? It is stated by Statistics Canada, Finance Canada, leading economists and former Privy Council clerks.
Let us talk about some facts. Corporate tax breaks have not stimulated investment. Despite a 36% drop in corporate taxes both federal and provincial in the last decade, and record profits for much of that time, business spending on machinery and equipment has declined as a share of GDP. Total business investment spending has declined as a percentage of corporate cashflow and this is sourced from StatsCanada and Finance Canada.
Corporate tax breaks have not stimulated innovation. “The intensity of IT use by Canadian businesses is only half that of the U.S” said Kevin Lynch, the former clerk of the Privy Council and cabinet secretary.
In 2007 Canadian business spending on R and D, about 1% of GDP, ranked 14th in the OECD, well below the average of 1.6% and only one-third of that of Sweden, Finland and Korea.
Corporate tax breaks have not increased productivity. Kevin Lynch said that despite Canadian corporate tax rates well below those of the United States, “business-sector productivity growth was actually worse in the decade just ended”. Low productivity growth, of course, is a sign that business has not invested in new labour saving technologies or in productivity enhancing R and D.
Canada's business sector productivity in 2007 was 75% of that of the U.S., down from 90% in the early 1980s. This, despite cuts in federal corporate income tax rates from nearly 40% to the current 18%.
Are we more competitive? In 1999, the year before Paul Martin's tax cuts, Canada was fifth in the World Economic Forum's competitiveness list. Today we are in ninth place, well behind most Nordic countries, which collect as much as 50% of their GDP in taxes each year. Clearly, the link between tax cuts and performance is a myth.
Far from tax cuts influencing business investment decisions, if anything, corporate investment performance has become weaker, even as corporate taxes have been deeply cut. In 2007, before the Conservative corporate income tax cuts began, Canada's combined federal and provincial corporate income tax rate was already below the combined state and federal rate of our chief competitor, the United States, and below the rates of all but one other G7 member, the U.K.
When the Conservative cuts are fully implemented, Canada will have the lowest rate in the G7 by far, 12 percentage points below the comparable U.S. rate. While corporate profits in Canada are on the rise, investment, innovation, and productivity continue to lag.
It is a myth that corporate tax cuts create jobs in Canada, a dangerous myth that leads to reduced support for essential programs, services, and infrastructure on which Canadians rely. It also leads to a bigger deficit, higher debt payments, and increased taxes for the rest of us.
The Conservatives are also keen to help out their friends on Bay Street who are struggling, helping those downtrodden bank executives receive even fatter pay increases. While the finance minister has told Canadians to tighten their belts, the CEOs of Canada's big five banks saw pay increases of 10% in 2009.
For example, the CEO of the Bank of Nova Scotia was awarded the biggest increase, 29%, followed by the Bank of Montreal CEO at 25%. The CEO from the Bank of Nova Scotia was paid $9.7 million and $2.9 million in bonuses, including salary and equity linked compensation, while the compensation for the CEO of the BMO was $7.45 million. The highest paid CEOs in Canada were from the Royal Bank and from the Toronto Dominion Bank, who were granted about $10.4 million each. The Canadian Imperial Bank of Commerce paid its CEO $6.2 million. This information was from Bloomberg on March 5.
The Bank of Nova Scotia became the last of the big five banks to report its profits for the first quarter of 2010. BNS posted a profit just short of $1 billion, which is not bad for three months during a recession.
In total, the big five banks, BNS, RBC, BMO, CIBC and the TD Bank earned more than $5 billion in quarter one of 2010. The 2010 tax rate on that income is 18%, 4.12 percentage points below what it was when the Conservatives introduced these cuts in 2007.
Those cuts to date mean the big five will receive a quarterly bonus of more than $200 million from other Canadian taxpayers. This is shaping up to be a year that will far surpass the excessive benefits the government bestowed on the banks last year.
Where do these banks get their profits? It is no mystery to me, but for those who have been living in a box for the past 18 months, I will explain. Credit card interest rates is one way. These interest rates have been increasing at an alarming rate. These outrageously high rates and fees have continued to pad the pockets of our nation's big banks.
Most of us do not know that credit card fees are also a huge burden on businesses, yes, businesses, a group we would think the Conservatives would stand up for. Small businesses, which make up about 70% of the workforce, are a vital part of the local economies and communities. With these rising rates and the growth in new premium cards, many of these businesses may soon close their doors forever.
Profit margins are tight in a tough economy. Keeping a business afloat is already incredibly difficult. These businesses are facing yet another challenge, this time from the credit card companies. New fees charged on transactions are taking a heavy toll on SMEs' bottom line. Some of those that are hardest hit are restaurant owners. Many are even resorting to asking for payment in cash only so not to fall victim to the creeping transaction costs charged by the big credit card companies. Many restaurants do this. They do not want to raise their prices on already hard hit consumers. Raising prices is bad for customers and their businesses.
The Canadian Restaurant and Foodservices Association estimates that the average cost of accepting payment by credit card is 2% of the bill, which is called interchange fees. This does not sound like much at all but let us remember that the food service industry typically operates at profit margins of 4%. It is outrageous. If a business owner does not want to pass on this cost to its customers, it makes life very tough.
To date the Conservative government repeatedly refuses to take action to regulate credit card fees; as always, on the side of big banks. Instead of taking real action, the Conservatives are holding on to the hope that these companies will follow a voluntary code of conduct for credit card companies, a code which even if they volunteer to follow, they can violate or ignore whenever convenient.
The government claims to be the champion of small business, but it always backs the big banks and credit card companies at the expense of people and consumers who end up paying more. It is time for the government to change its tune and impose strict regulations on credit card companies and to put consumers and Canadians first rather than corporate CEOs and bank bosses.
The most important thing to remember is that while the Conservatives say their priority is jobs and economic growth, what they plan to do is entirely different.
Corporate tax cuts, as mentioned earlier, do not create jobs. A company that is not making a profit, whether because it is losing money or just breaking even, does not pay tax. That is a fact. Therefore, when the government cuts corporate taxes, only the richest companies benefit.
Conservatives have priorities all right. Helping out their friends, not all Canadians. Whether it is with Senate appointments or secret deals with foreign companies, as happened in my riding of Sudbury, we cannot see the Investment Canada Act and we have had Xstrata lay off 686 people and at Vale Inco we have had over 3,000 people on strike for eight months.
Unfortunately, the Conservatives continue to show their true colours and their out of touch nature with the average Canadian family.