It’s Budget Time

In 2000 in Canada the Federal Corporate tax rate was 29.1%
In 2006 the then Liberal government reduced the rate to 21.6%
In 2008 the new Conservative government slashed the Federal Corporate tax rate to 15%, They said, “to stimulate the economy”, “Create jobs”.
Why hasn’t corporate investment flooded into Canada?
The Statutory Federal Corporate tax rate in the United States is presently 34–35% yet their economic growth is more than double that of Canada’s.

Business investment as a share of the economy declined since 2008 while corporations made ever-higher profits and amassed over $600 billion in surpluses and excess cash. This excess cash surplus further exacerbated the 2008–09 financial crisis. Lower corporate tax rates have also resulted in “tax leakage”, as those with the means to do so channeled their income through corporate entities rather than through the personal income tax base. These monies were intended by the Federal Government to stimulate the economy by increasing investment in Canada and therefore increase jobs and employment. Slashing the corporate tax rate did neither. Instead, corporations said thank you very much, increased executive compensation, took much of their monies to outside tax havens and left Canada with lost revenues of $330 billion over the last 6 years and a further $160 billion increase in Federal debt.

This is equivalent to almost 17% of annual GDP, and near half of total federal debt. Of the total revenue loss from Conservative tax measures, $72 billion has gone to corporate income tax cuts. If federal revenue as a proportion of the economy reached the same level today as it did in the year 2000, an extra $50 billion in annual revenues would be available today. The cuts supposedly needed to balance the budget would not have been necessary. Instead of maintaining adequate funding the former government’s commitment was to reduce transfer payments to the provinces. E.g.: slash the Canada Health Transfer from 6% to the rate of GDP growth (with a minimum 3% commitment), amounting to as much as a $36 billion cut from health care leaving the provinces and municipalities to make up the shortfalls. Couple that with cuts to education, municipal developement improvements promises, Indigenous Peoples, environment and the list goes on, there is no wonder that budgets for 2016 need deficit financing.

Regardless of which political party controls the government, the results would be basically the same. The bills need paying and there is only one payer – the Canadian taxpayer. It is either that or reduce middle class living standards further and leave the lesser classes, lower income families, pensioners and indigenous peoples basically out in the cold.

Yes the former federal government did cut federal taxes for most Canadians but their regressive measures required provinces and municipalities to compensate by increasing their share of each Canadians tax burden. When most Canadians added up their total taxes paid for years 2014-2015 and 2015-2016, they discovered that under the former administration their taxes had increased overall.

When we look at the taxation pie knowing that there is a $50 billion shortfall in annual revenues, what now needs to be done to make up for that shortfall. There are basically five choices:

1. Deficit financing. Which cannot be continued forever or sooner or later the payments and interest on the Canadian debt will exceed GDP and Canada will be essentially broke.
2. Increase taxes. Which can make up some of the shortfall in year 2 and 3 hoping for an increase in Canada’s economy but in rough economic times when quality employment has gone down there is less income monies to tax.
3. Invest in Corporations hoping they will expand operations and hire more employees. Hasn’t worked over the past 8 years …? Requires further deficit financing and that is the dilemma. Will Canada end up further in the hole with nothing to show for it?
4. Invest in infrastructure projects. Again, requires further deficit financing and can only continue for a limited number of years. The hope is that improved infrastructure will attract and encourage investment and in turn create permanent employment and tax revenue. Improved infrastructure projects are desperately needed throughout Canada and therefore monies borrowed at this time while interest rates are low may be a wise use of deficit financing but again, cannot be continued forever.
5. Do nothing. Invest in nothing. Cut spending. Use what tax monies that the government has coming in to lower the deficit. Hope for the economies of the world to improve enough that Canada’s economy will improve by the osmosis principal. Has never worked for any country in the past. Has not worked for Canada even bordering the largest and fastest growing economy – the USA.

“… I think it is time we all learned how to say it, the neoliberalism experiment in tax cuts to deliver wealth has been tried and is a monumental failure. Growth is stagnant. The economy is suffering, not just in Canada but everywhere. In Canada particularly more than some of our OECD colleagues, we have had stagnant growth for a while now. We are not seeing investment, and I want to touch on what our corporate sector has been doing or not doing.” Elizabeth May, MP Speech on Bill C-2

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s