Madam Speaker, I rise to join the debate on corporate tax cuts. I will be sharing my time with my hon. colleague from Humber—St. Barbe—Baie Verte.
Today we are discussing the decision of whether to proceed with tax cuts for large corporations rather than investments in Canadian families, pensions, learning, health care and family care.
Rather than the Conservatives' misguided priorities of spending billions of dollars of borrowed taxpayer dollars on untendered fighter jets, building U.S. style prisons, G20 summits and tax cuts for the largest corporations, this House and the Liberal Party will argue and ask the government to reverse this irresponsible decision of the tax cuts in the upcoming budget.
The government believes that cutting taxes is a panacea to all else and warn that doom and gloom awaits us if we do not continue to cut corporate taxes. The Liberals agree that it is important to tax corporate profits at a competitive rate because we want companies to invest more of their profits here and foreign firms to see Canada as a great place to do business because more investment means a stronger economy and of course more jobs.
As a Toronto Star editorial stated:
But there’s a difference between staying competitive and making a fetish out of one benchmark — ever-lower corporate tax rates.
Canada already has one of the most competitive business tax environments in the world. The federal Liberals started the trend last decade when the deficit had been eliminated and the economy was booming and we were in surplus. We slashed corporate taxes from 28% to 21% in 2004. The Conservatives went further, cutting them to 18% in 2010. That put Canada in third place in the G7, behind only Italy and the U.K.
The Conservatives now want to drop our rate further to 16.5% and then further again to 15% in 2012, costing the treasury $6 billion this fiscal year alone and over $10 billion by 2012. Let us think of what $10 billion could do for our economy.
Every year since 2000, corporations in Canada have received a generous tax cut. When times were good and everyone was getting tax cuts Canadians accepted that Ottawa was giving up billions of dollars of revenue. However, times are no longer good and the government is running a deficit of $56 billion and Canadians have not had a personal income tax cut in over four years.
As other countries continue lowering their corporate taxes, must we continue to do so? Do we really risk the flight of capital, of corporations and of investments to other countries if we do not continue to lower our corporate taxes?
The Conservatives would have us believe so. In fact, they quote Jack Mintz of the University of Calgary who claims we will be left behind other countries with more aggressive tax-cutting regimes if we stop cutting our tax rates.
This is false. Corporations lay down roots for many reasons other than the lowest tax rates. Most of those reasons have little to do with tax levels. Companies locate in Canada because of our highly trained workforce, access to major markets, our lower dollar, sophisticated communications, our lack of corruption, quality social services and social programs, education, an excellent quality of life, and much more. If corporate taxes were all that mattered, Ireland, with its rate of 12.5% would still be booming. No one would do business in Scandinavia where taxes remain high. In the U.S. where corporate taxes vary from state to state, companies would flock to zero tax havens like Nevada and Wyoming, but they are not.
It is also not clear that corporate taxes necessarily lead to more jobs. The evidence is mixed. Other measures, such as spending on infrastructure or cuts to personal income taxes may help foster growth and create even more jobs.
Jim Stanford of the Canadian Auto Workers argues that cutting corporate taxes would actually destroy jobs. Business would hoard not hire, leaving less money in the federal treasury for EI benefits, retraining and infrastructure.
Next year, Ontario businesses will pay a combined federal and provincial rate of 25%, which compares to a rate of 35% in the U.S.
One would think that the growing gap is a big incentive for U.S.-based multinationals to invest in Canada, perhaps even offsetting the higher cost of the Canadian dollar. That is wrong. Tax cuts are of little attraction.
In fact, U.S.-based companies, unlike most foreign multinationals, are taxed by the IRS on their global income. Therefore, profits that are not reinvested but are repatriated are hit with a higher rate back home, not the Canadian rate.
The lower tax rate makes profits looks better in Canada, but that just means Americans are taxed more in the U.S. Therefore, the Conservative tax cut is not a huge draw.
In fact, Scott Clark, a former deputy finance minister, points out that after the recent recession, many companies are reporting losses or depressed profits, making tax breaks a lot less attractive than when the economy was booming. Many large corporations would not be paying taxes on their profits because of many recorded losses during the recession and will be able to record those losses against their profits for many years to come.
Two sectors which weathered the recession well in Canada were the oil and financial services industries, so the tax cuts the Conservatives are willing to provide to their friends in Calgary are in the oil sector and, of course, the big banks, unlike forestry and manufacturing, which did not turn a profit and may have benefited from a cut.
Making a country that is good for business is a lot more complicated than shifting the tax rate a few percentage points. Timing is key. Cutting business taxes when we are in a surplus or when the budget is balanced is one thing, but continuing to cut when the deficit is $56 billion effectively means borrowing more to cover the lost tax revenue.
We need to hit the pause button and get our fiscal house in order. Tax cuts are not the magic bullet for what ails our economy, nor are they the elixir for investment, growth and jobs, as the Conservatives claim. They are a drain on the fiscal purse at a time when there are better ways to create jobs.
According to Philip Cross, Statistics Canada's top economic analyst, Canada's natural resources, the price of oil, currency fluctuations and the state of the country's financial markets have been far more influential on corporate investment decisions than the recent tax cuts. A broad look at how corporate tax rates have changed Canada suggests the impact of small cuts is marginal for most companies. The larger impact is on the government's bottom line.
Other analysts argue that as a result of the tax cuts, corporations sat on their savings, hoarded the cash, bought back shares or sent profits out of the country to their foreign headquarters instead of investing, expanding and hiring in Canada. In fact, the tax cuts do not apply to small businesses, which are the job creators in our economy since they have their own tax rate.
According to Carol Goar, a writer for the Toronto Star, five questions need to be asked of promoters of corporate tax cuts.
First, what evidence does the government have that reducing corporate taxes stimulates job creation?
Second, how does the finance minister know corporations will use their tax cuts to hire workers rather than invest in labour-saving equipment, give executive bonuses, increase their shareholder dividends, facilitate mergers and acquisitions or simply sock the money away?
Third, if the finance minister is eager to encourage hiring, why did he jack up the employment insurance premiums on January 1 by $13 billion? Nothing kills jobs faster than a payroll tax.
Fourth, what proof exists that corporate tax cuts make Canadian companies more competitive? They could have the opposite effect. Instead of investing in research or innovations, firms could use tax cuts to undercut their rivals, buy back shares or give executive bonuses.
Fifth, why is it good economic policy to shift an ever-growing portion of the tax burden from businesses, many of which are highly profitable, to individuals, many of whom are struggling to get back on their feet after the recession?
After five years of the Conservative government, Canadians are worse off and the corporate tax cuts are only borrowing against our children's future. The government's real priorities are fighter jets, U.S.-style mega-prisons and more tax cuts for the largest corporations.
In the five years since the Conservative government was elected, Canada has become less equal. The rich are getting richer and middle-class Canadian families' incomes are stagnating. The pressure on families is increasing and the elastic is stretched really tight.
Liberals would make different choices and defend the priorities of Canadian families. We would cancel the $16 billion jet fighter deal and save billions by replacing the CF-18s in an open competition. We would cancel the government's corporate tax breaks and freeze tax rates at 2010 levels.
Canada's corporate tax rates are already among the lowest of the G7. Liberals would reinvest the savings in reducing the deficit and the priorities of middle-class Canadian families. Pensions, learning, health and family care are the real issues affecting working families and these are the priorities that the Liberal Party will fight for.