Happy New Year, corporate Canada

Lana Payne
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The great Canadian giveaway continues. Canada's most profitable corporations - such as banks, oil and mining companies - are about to get another big gift from the Harper Conservatives.

How low will corporate taxes go before common and economic sense prevails?

On New Year's Day, the federal corporate tax rate will be reduced once again as it has been every year since the Conservatives have been in power, dropping from 21 per cent in 2006 to 15 per cent in 2012.

Canada now has among the lowest corporate tax rates in the industrialized world, lower than even the United States.

The Parliamentary Budget Office says the reduction to 15 per cent in 2012 from 18 per cent in 2010 has cost the government $11.5 billion in annual tax revenue.

It has significantly contributed to the federal deficit that is being used as the excuse to slash government programs and services and lay off thousands of federal civil servants.

What is becoming clearer and clearer is, despite billions and billions in tax breaks, corporate Canada, for the most part, is not creating the jobs it could be, not spending on capital investment or raising wages.

Indeed, at the end of 2011, there was real concern that the cost of living (inflation) was now outstripping wage increases. This, combined with rising household debt and massive government spending cuts and layoffs, is not exactly a recipe for a healthy economy in 2012.

As Bank of Canada Governor Mark Carney said before Christmas, corporate Canada must do a better job of investing its hoarded cash, estimated to be about half a trillion dollars.

Mr. Carney's pointed message to Canadian corporations belies the hype from the Harper Conservatives that these tax cuts are producing jobs or new business investment. In fact, Mr. Carney was clear, it is Canadian consumers who are propping up the Canadian economy, not corporate Canada.

In fact, a study by Canadian economist Armine Yalnizyan shows that average annual business investment was about the same at the end of 2010 as it was in 2000, despite a decade of corporate tax cuts worth billions and billions of dollars.

The proof, as they say, is in the pudding. Many studies are now questioning the economic benefits of rapidly declining corporate tax cuts.

A study by economist Jim Stanford, for example, found that Canadian corporations have received a whopping $745 billion in excess, uninvested after-tax cash flow since 2001 - money not reinvested in real capital projects in Canada.

This sluggish business spending is one of the key reasons Canada's recovery from the recession has been uncertain and lethargic, says Mr. Stanford.

"Supplementing that cash flow through further tax cuts is like pushing on a string. Those tax savings would only add to the large sums of uninvested cash flow Canadian businesses already possess."

Canadians should question the wisdom of handing out more tax cuts to banks, oil and mining corporations. They don't need it.

Canada's banks and financial sector will rake in about one-fifth of this year's $2.5 billion tax cut. Yet Canada's big banks had profits of about $22 billion in 2011 and handed out about $9 billion in executive bonuses. The last thing they need is another $500 million through even lower taxes.

Oil and mining companies, also extremely profitable, will pull in about $300 million extra in 2012 as a result of the tax cut.

And the Canadian citizen will have to pay for these reckless tax breaks through reduced services, like the loss of the maritime rescue centre in Newfoundland and Labrador.

It says a lot about the Harper government's priorities.

The tax cuts are costing us jobs, services and much needed investment in municipal infrastructure, including transit, roads, and sewage treatment facilities.

And corporate Canada is not delivering on its end of the bargain. It has failed to create the jobs it said it would if the federal government reduced its taxes.

These no-strings-attached tax cuts are causing more harm than good - robbing the public treasury of billions of dollars - and yet the Harper Conservatives continue to ignore the facts and lie to Canadians about the benefits of corporate tax cuts.

Another study by economist David Macdonald of the Canadian Centre for Policy Alternatives tracked 198 of the 245 companies on the S&P/TSX composite between 2000 and 2009. It found that those 198 companies are making 50 per cent more profit and paying 20 per cent less tax than they did a decade ago

"Despite their growing profits and massive tax savings, the number of jobs created by Canada's largest corporations was lower than the average employment growth across all sectors of the economy," says Mr. Macdonald. "In essence, the largest beneficiaries of corporate tax cuts are dragging down Canadian employment growth."

Employment is one thing. Wages are another. And wages in Canada, despite billions in corporate tax breaks, are not even keeping pace with inflation.

In his pre-Christmas television interview, Stephen Harper warned that 2012 would be a tough economic year for Canadians.

What he neglected to tell us is he and his government will be the cause of a good deal of that pain.

Lana Payne is president of the Newfoundland and Labrador Federation of Labour. She can be reached by email at lanapayne@nl.rogers.com. Her column returns Jan. 14.


Organizations: Harper Conservatives, Parliamentary Budget Office, Canadian Centre TSX Newfoundland and Labrador Federation of Labour

Geographic location: Canada, United States, Newfoundland and Labrador

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Recent comments

  • Carl
    January 03, 2012 - 11:20

    Ms. Payne once again has some key facts wrong. When she says Canada's corporate tax rate is one of the lowest in the world, she is talking about only the federal corporate tax. When you include provincial corporate taxes, Canada's total corporate tax rate is in line with the OECD average. She also mentions the Parliamentary Budget officer's prediction that the federal government will lose money by cutting the corporate tax rate, but she fails to mention that corporate tax revenues collected by the federal government have actually gone up every year since the Conservatives took office. That's because the lower corporate tax rate is more than offset by increased corporate activity stimulated by the government's low tax policy. To understand why this works, I encourage Ms. Payne, and Telegram readers, to look up a universally accepted economic principle called the "Laffer Curve."

    • Peter
      January 03, 2012 - 22:51

      The "Laffer Curve" is NOT universally accepted, and is called the "laugher curve" at the "joke" that paying less taxes means businesses will eventually pay more taxes. The whole point of the article is that all the tax breaks given to the big corporations has been hoarded as cash, not re-invested in re-tooling factories, doing research and development, etc.

    • Carl
      January 04, 2012 - 13:19

      When I said the Laffer Curve is universally accepted, I meant it is accepted by all economists -- I realize it will never be accepted by union activists like Ms. Payne. The Laffer Curve does not suggest that cutting tax rates always increases tax revenues, but it does demonstrate that there is an optimal tax rate, and increasing rates beyond that point lowers tax revenues. The proof of the pudding is in the eating -- corporate tax revenues collected by the federal government have risen by billions of dollars each year as the federal government has cut the corporate tax rate. Corporations choose to pay taxes here in Canada instead of elsewhere. In the short term, they can do this by using accounting methods to shift their profits on paper to Canada. But in the medium to long term, they will also shift their operations here, creating jobs for Canadians. It is also important to note that Canada's current unemployment rate of just over 7% is low compared to our historical average. To put it in perspective, unemployment in Canada was in the double digits for much of the 1990s, even though there was no recession!

  • Anon
    January 02, 2012 - 09:59

    Harper doesn't care about the Canadian people. I've been saying this for years. Now you have your proof.

  • Have a Happy Humbug New Year Mike In Ontario
    January 02, 2012 - 08:50

    And, Oh yes Mike In Ontario, your wealth was probably created because the province of Newfoundland and Labrador has been forced under a Centralist governed Canada to ship off all of its natural resources to your area in the Raw State to create vibrant economies for the past 62 years. If what you say is true Mike, you appear to be the Scrooge of Canada, 158 years after the Scrooge Character of the London Workhouse days melted into oblivion. You have a Happy Humbug Year Mike that is if you can live with your conscience!

    • mike in Ontario
      January 02, 2012 - 12:00

      I will have a happy new year. I have made lots of extra money this year that will benefit myself and my family. Yes, I have put people out of work to increase my profits, but I can live with that because it translates to more for my family. At the end of the day, family comes first, family is important, whereas my workers are just tool, to be used and disposed of as necessary. Honestly, it does make me feel bad sometimes, but those feelings go away when I see how my cut-throat, ruthless decisions benefit my family. Again, it comes down to putting family first. Chantal: I have actually looked into prison labour and there are still too many rules/regulations that make it an unatttractive option. Offshoring leads to more profits overall when you factor in the lower tax rate, lower wages and most importantly the tax (corporate and property) holiday's that US governments are giving to companies who move jobs to the US.

  • Chantal
    January 02, 2012 - 08:15

    Mike, have you considered looking into prison labour? It's even cheaper than China and you know those greedy union bosses can't get to them. God bless you and your shareholoders.

  • Canada II
    January 01, 2012 - 22:42

    Aww, why is everyone picking on those poor, defenseless, out for the best interests of the public, environmentally conscientious, corporations? They are such a force for good in our world...

  • Canada has Terminal Cancer... Harpernoma
    January 01, 2012 - 18:35

    Using his power to hurt UN-wealthy Canadians and reforming Canada into a fascist-designed and operated continental resort for the wealthy and morally deranged... everyone else is, or ought to be, a ('grateful') indentured slave or locked up in a prison. Real special things you got growing in Canada Harper, almost as useful as cancer.

    • Lane
      January 04, 2012 - 13:34

      Regardless of your personal partisan bias, it is beyond the pale to compare Canada's government, or for that matter any mainstream political party in this country, to fascists. Canadians of all political stripes - including many who support the Harper government - struggled, suffered and died to defeat fascism in WW2. If you want to criticize someone, try giving reasons and examples instead of just throwing around such disgusting and frankly stupid rhetoric.

  • David Goldstein
    January 01, 2012 - 17:01

    Hack job: “What is becoming clearer and clearer is, despite billions and billions in tax breaks, corporate Canada, for the most part, is not creating the jobs it could be, not spending on capital investment or raising wages.” • It is very easy to type this out, but how about some hard cold numbers? • Harper is playing a dangerous game: low corporate tax is said to be one of the perpetrators in Ireland’s demise. “There was real concern that the cost of living (inflation) was now outstripping wage increases.” • She doesn’t mention how some companies have had to increase their contributions to defined benefit plans • Nor does she pay heed to the increase in insurance premiums employers have had to pay “As Bank of Canada Governor Mark Carney said before Christmas, corporate Canada must do a better job of investing its hoarded cash” • She doesn’t care to mention that mining companies have increased their dividends YOY in many cases. Shareholders (citizens, pensioners get this money) • Mark is right, but in this low yield environment it’s very difficult to find opportunities that are worth investment. Risk appetite has diminished since 2008 and with the economic uncertainty that remains thanks to the European debt crisis, corps. (banks in particular) are hoarding cash in case of another systemic breakdown. “Canada’s banks and financial sector will rake in about one-fifth of this year’s $2.5billion tax cut. Yet Canada’s big banks had profits of about $22 billion in 2011 and handed outabout $9 billion in executive bonuses” • She “forgets” to mention how banks worldwide, including Canada’s big 5, will have to increase capital reserves to meet Basil III. The bonuses she speak of are not just for CEOs, but in aggregate. She doesn’t mention that each bank employs thousands of Canadians already who will see yearend bonuses. “ Will have to pay for these reckless tax breaks throughreduced services, like the loss of the maritime rescue centre in Newfoundland and Labrador.” • How many individuals does this rescue centre employ? 12 http://www.cbc.ca/news/canada/newfoundland-labrador/story/2011/06/07/maritime-rescue-closure.html it also states that, “The centre's role will be moved to the Joint Rescue Co-ordination Centres in Halifax, and Trenton, Ont.”

  • mike in ontario
    January 01, 2012 - 15:24

    TO John harker: it was nice to move those jobs to the US....it was very very nice. I save close to 40% on employee wages. It nice to spend more on MY family and MYSELF, much nice than giving than money to workers. It is all about keeping the $$ in the family. of course, that is more profit to declare, and while I do participate in income splitting with my family, I follow the law and pay the required takes. So note that I do pay more taxes since I gross more money. BUT naturally, I end up with more money in my bank account because of the wage savings....SO it was nice, it was very nice. We had a wonderful Christmas and hope to have a great new year.....I wish you one too John harker Are my American workers happy? WHo gives a crap? I want workers, cheap workers to do the job. If they are unhappy, then can be unhappy or they can leave. If I am unhappy with their performance, I will not hesitate to terminate them. If I am unhappy with the labour policies, I will move the business as I did with Ontario. What I strive for is happiness for myself and my family. Family comes first, even if it means putting people out of work. It is tough to say, and honestly heartwrenching to actually do, but you gotta do what is necessary to give your family the most. SO, in the name of family, even after 5 consecutive years of records profits, I still chose to relocate jobs to areas with cheaper wages. I also employ a computer engineer who desiged an software application that replaced the jobs of hundreds of workers with a computer. For these job functions, no wages, raises, benefits, vacation pay, or any of that stuff is paid anymore. That engineeer works in the Toronto head office with me and my family members...I consider these people the core of the company and will never offshore THOSE jobs. But the other jobs, I will move to where ever offers the labour policies that translate to maximum profits. And while you may not want these minimum wage jobs, I'll have you know that the workers that I laid off DO want these jobs. There were really frustrated that there was nothing they could do to save their jobs, but at the end of the day, math is math, and Canaidan labour laws means that these workers cannot compete with their American counter parts. Note that these are unskilled, uneducated workers....there are millions of similar people in the world who can do this. It would be silly of me to pay Canadians more for the same work that can be done elsewhere at a fraction of the cost. On the other hand, my computer engineer's work is priceless to me and I would never offshore his job. But he is skilled, educated, and does work that save me money. In closing, corporate taxes are still too high. You may disagree, and I respect that. BUT please understand that there are people who would want a minimum wage job in Canada, and there are also people who would work for less. Please understand that the current minimum wage DOES price certain Canadian workers out of the market. That, combined with american state and city governments who are offering tax breaks and holidays and cheap real estate to intice companies to move jobs to the US, made it quite inefficient, especially in my case, to keep jobs in Canada. At the end of the say, it is just math.

  • Steal from the POOR, give to the RICH... HARPER is RETARDED ROBINHOOD
    January 01, 2012 - 15:16

    Cut corporate tax rates and all the 'savings' are shipped to the united states, as per free trade and American tariff rules based on the cost of Canadian business... this occurs at a time when Canadian business is already flush with cashflow due to lack of viable investments, so the only thing that is left to be concluded is that Canada's democracy has been taken over by American lobbyists clad in fascist clothing. Harper's cuts make sense if you follow the money trail to who gets rich... Harper is divesting Canada of secure economic policies and gutting our future stability, all to pay off his rich American and Canadian buddies... he certainly IS NOT acting on behalf of Canadians when he dumps taxpayer money into the hands of useless, know-nothing corporations who's own companies aren't even viable investments at the moment and they are unable to locate a viable investment in the world either. Feels like rats cannibalizing rats knee deep in death.

  • John harker
    December 31, 2011 - 15:20

    Well isn't it nice for mike in Ontario to relocate his business to a so called southern neighbor because of lower minimum wages and easier labour laws. I hope his low paid American slaves are happy, I believe one of the tenets of fascism is business control of labour, and I'm sorry to see in such a developed world nation we encourage this race to the bottom. Well mike, on behalf of all working ontarians we can do without your low paid jobs.

  • ivan johnson
    December 31, 2011 - 12:34

    This latest news of rich corperations receiving breaks while taking large profits and not reinvesting back into the country that gave it to them, at the cost of ordinary citizens i.e., loss of jobs, wages, benifits, is not new but has been with us since 1988 when the majority of Canada was fooled into that infamous failed "free-trade" deal. This latest is just a continually progresive effort by big corperations to remove high priced labour, get out of paying ANY taxes, remove government seen interferrence, and slash all benefit costs to their bottom line. It dosen't appear that they will be satisfied until ALL employees are making miminal wage(or less even), have to pay out for any and all services and benefits, and when they have full control of our"elected" governments(which they pretty much already have now). You'd have thought that 'WE' the majority would have ;GOT IT' by now ; big corporations don't feel they should pay for anything and should get everything. They don't like democracies , they hate organized labour , they detest taxes and want everything handed to them. Problem, hmmm , if 'WE'are regulated to slave class liiving,forced to work who knows how long week to week just to survive, how are they to keep up their profits ?

  • Wthiam
    December 31, 2011 - 11:33

    Tax cut once again 2012.

  • mike in ontario
    December 31, 2011 - 10:50

    Just to add a business owner's point of view, corporate taxes are still too high, compared to other jurisdictions. I just relocated close to 100 canadian jobs to a southern "right to work" state to take advantage of lower taxes, a lower minimum wage, lower property taxes. To boot, the various level of US government have given me a tax holiday on my corporate taxes and property taxes, AND gave my a sweetheart deal to buy the building I will operate of, simply because they are so desperate for jobs. I will go where ever is best for me. At the end of the tax holiday, I am free to negotiate with Ontario and other states, and would be happy to come back to Ontario IF their tax and labour policies are comparable..At the end of the day, I will locate my business in the jurisdiction that will allow me to make the most possible profit. With today's technology, I can be in Canada at the head office, and have the front line work done from anywhere in the world. So, to me, Ontario is still not doing enough with corporate taxes to incent employers to bring jobs here, and also not doing enough to KEEP CURRENT jobs here. For example, employers have to may more CPP for their employees starting JAN 1. WHY ON EARTH would I want to pay more for the pension of my employees when that money could be added to MY retirement fund.

  • mainlander
    December 31, 2011 - 10:21

    Harper knows who butters his bread - it's not the middle class taxpayer who will end up paying for this tax cut for corporations who can afford to pay it!

  • djd
    December 31, 2011 - 10:01

    Why did he only report on 198 companies? Did the other 47 not support his conclusion? Also, these tax cuts apply to small business as well.

  • Jonathan
    December 31, 2011 - 09:03

    If anything I think that the money would be better spent on the small buisnesses, I mean if anything they should help the employment rates and maybe make the big corporations try to actually compete for their luxeries. I mean like small buisnesses need it more since they are the ones who are trying to grow and get bigger. If the federal government thinks that corporate canada will give money back when there are no consequences then this might as well be a communist society since the government thinks that they care, when in reality they only care about their corporation's success. Harper honestly has done nothing since our recession back in 2007. The americans did the same thing when they caught wind of the recession, look where it got them, they are doing worse than before! All I know is that Canada as a people should stop this, I guess the occupy movement was right all along.