The corporate tax cut was a bad idea anyway

The record of Canada's largest corporations in job creation since the signing of the free-trade deal is dismal.

The hue and cry from Tom d'Aquino of the Canadian Council of Chief Executives over the loss of corporate tax cuts in the NDP/Liberal accord isan old, tired tune: corporate Canada demanding to keep its predominant placeat the tax-cut trough as a way of becoming competitive with the UnitedStates.

Do these people deserve it and do they need it? The answer on both counts isno.

First, let's dispose of the notion that Canada's largest corporations arejob-drivers. The record of CCCE members in job creation since the signing ofthe free-trade deal is dismal. Straight Talk, a Canadian Centre for PolicyAlternatives study of the job creation record of 39 CCCE companies, showedthat despite increasing their combined revenues by $144-billion, these same39 decreased their collective work force by 100,268 jobs or 14.5 per centduring 1988-2002.

Secondly, Bay Street spokesmen constantly imply that we are desperatelybehind the United States in the race to lower the corporate income tax rate.The statutory federal corporate tax rate in the United States is 34 percent, and in Canada is now 21 per cent — while the combined effective taxrate in Canada is five percentage points less than in the United States.

But how low do we have to go to be competitive with Americans? In fact, with allthe tax cuts implemented by Paul Martin, the only sector of tax-filers toreceive an effective (that is, real) tax cut is the corporate sector.Despite personal income tax cuts, the share of total personal income takenup by income taxes has not fallen.

The role of corporate tax cuts in spurring investment has always beenoverplayed by the CCCE. Surveys of CEOs over many years have shown thatincome tax rates usually play a relatively minor role in investmentdecisions — often appearing fifth or sixth down the list of factors. Themore important issues include the cost of borrowing, availability of trainedworkers, energy costs, access to markets, land costs and, of course, thedemand for the good or service in question. The issue of income tax is onlyimportant if you actually make an income.

Why all the fulminating about more tax cuts? The federal budget documentsadmit that U.S. taxes are lower already, but still insist that we need evenmore to be competitive. This argument reveals, albeit indirectly, the realproblem with Canadian corporations: They can't compete with their U.S.counterparts, especially under the free-trade regime. This judgment comesfrom none other than Peter Nicholson, one of free trade's gurus, a formerScotia Bank vice-president and currently a personal adviser to Paul Martin.

Supporters of the free-trade agreement, said Mr. Nicholson back in 1991,thought it would “cause Canadian firms to pull up their socks . . . andcompete in the North American market.” Instead, bemoaned Mr. Nicholson, manycompanies adjusted to the FTA “by simply moving across the border . . .taking the path of least resistance.”

Corporate Canada is still on the path of least resistance, pleading for moremoney from ordinary taxpayers instead of meeting the challenge of reallycompeting. It still refuses to invest seriously in necessary research anddevelopment, declines to pay to train its workers, is uncompetitive in wagesand salaries for high-tech workers, and is notoriously risk averse. Canadiancorporations would apparently rather switch than fight, showing an eagernessto simply sell out to U.S. companies. Since 1989, more than 95 per cent offoreign investment in Canada has gone to buying up Canadian companies.

Canada does have some genuine competitive advantages over the United Statesand it would be refreshing to hear someone from corporate Canada supportthem.

Medicare, for example, gives the Big Three auto makers a huge competitiveadvantage in Canada. According to recent media reports, private healthinsurance for its U.S. employees costs General Motors $1,525 (U.S.) for eachcar produced.

Mr. d'Aquino would be a lot more credible if he came out supporting publicmedicare and increased spending to lower tuition fees, enhance child careand provide social housing so people now living on the street could actuallylook for work. In other words, he should support the very things that wehave now partially achieved because of the NDP's agreement with Paul Martin.

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