Corporate taxes

January 12, 2011

Flaherty gets it right

Four years ago, federal Finance Minister Jim Flaherty set out to cut corporate income tax rates in Canada. The idea was to increase investment, create jobs and ensure Canadian companies could remain competitive. The strategy is paying off.
Initially, the rate was 21 per cent, then 18 per cent and on Jan. 1 it went down to 16.5 per cent. Next year the rate will go down to 15 per cent.
As Flaherty has said, if jobs are going to be created then corporations need to remain financially healthy.
"If we want more jobs, higher wages and an improved standard of living, Canada needs to be the most attractive place for job creators to do business and invest," he said.
Finn Poschmann, the vice-president of research at the C.D. Howe Institute, points out that lower corporate income taxes are also changing perceptions about Canada.
"Canada's international reputation as a destination for capital and investment is better than it has been for a generation," Poschmann said in the National Post recently.
Canada's new-found reputation as being a business-friendly jurisdiction is also getting notice in the U.S.
Last week, the Wall Street Journal published an editorial pointing out that the U.S. should be looking closely at the competitive advantage that Canada is carving out with corporate tax cuts. The U.S. federal rate -- 35 per cent -- is more than double Canada's.
"Relative levels of taxation matter because companies and investors send capital where it can achieve the highest returns. Low marginal rates have helped the likes of Hong Kong (16.5 per cent), Singapore (17 per cent) and Ireland (12.5 per cent) attract capital, while the high U.S. rate keeps hundreds of billions of dollars from coming to America from offshore," said the Journal.
On the heels of the editorial, Canada's image also received a boost in the Washington Times where business author James A. Bacon said Canada is quietly surpassing the U.S. as the land of opportunity.
"Now, instead of expanding Canada's welfare state, the Conservative government led by Mr. Harper is intent upon building the nation's global competitiveness," said Bacon. "(The 15 per cent rate) will give Canada the lowest corporate tax rate among the G-7 nations and an eye-popping advantage for businesses wondering whether to locate on the U.S. or Canadian side of the border."
Certainly, Flaherty has more to do on the fiscal front -- including addressing the continuing high tax load on individuals and program spending that has been growing faster than the inflation rate for years. As well, the Harper government needs to cut costs and erase the deficit as quickly as possible.
But on the corporate tax front, the government's initiatives are right on track. As John Ivison reported in the National Post, despite rate reductions, corporate tax revenues were up 12 per cent in the first six month of 2010-11. Meanwhile business investment was up 20 per cent in the third quarter of 2010.
As the Wall Journal concluded, economic prosperity isn't a birthright, it's the product of sound economic policies.

http://www.windsorstar.com/news/Corporate+taxes/4095206/story.html