Taking a different tack with taxes

Russell
Russell Wangersky
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It’s like they’re putting something in Alberta’s water. As that province looks towards a potential $6-billion budgetary shortfall, there’s suddenly some very uncharacteristic talk coming from one of Canada’s traditionally more conservative provinces.

They’re talking taxes — all kinds of taxes.

The Parkland Institute, a social policy think-tank at the University of Alberta, is talking about the province dropping its flat tax rate for a rate that progressively increases for the wealthy. They’re talking about raising that province’s corporate tax rate from 10 per cent to 12 per cent, matching that of its prairie neighbours.

And the institute is suggesting that the province could haul in a staggering $11 billion in new taxes — and still remain the lowest-taxed jurisdiction in the nation.

Other economists are talking dirty — they’re using a kind of smutty talk that has been, for years, the anthema of free-market Alberta. They’re talking about a provincial sales tax, saying revenues from that source could smooth out the huge peaks and valleys of resource royalty revenues.

All in all, it’s quite a change from past years, when provincial governments — like banks and mortgage rates — have seemed to be in a death match to claim the lowest possible tax rates, both for businesses and individuals.

We’ve done a fair amount of the same thing in the past. Lowering tax rates has been a staple for recent Progressive Conservative governments in this province. The idea, apparently, is that low tax rates mean immediate attractiveness for business: moving costs, a skilled, existing anchored workforce, transportation costs to distant markets and overheads apparently are supposed to mean much less to the captains of industry. But here’s a newsflash: the captains of industry don’t get where they are by considering just one of many factors that make a business profitable in the first place.

So you have to ask yourself if lowering taxes, particularly corporate taxes, actually works.

After all, unlike income tax for individuals, corporate tax is levied on profits, on the money collected and pocketed after all expenses are paid, which means corporate taxes are already a dramatically different species than any other income-related tax.

And then there’s what tax cuts are supposed to achieve. The idea is that companies will take those

profits and quickly reinvest them in equipment, technology and improvements.

The actual results have been quite different. Companies have, by and large, stockpiled their extra cash to earn even more in investment income, which they are then taxed at the new lower rate. Either that, or the money has been used in the continuing purchase and amalgamation that’s seeing smaller business gobbled up by larger competitors — something that means larger profits (still being taxed at the new, lower rate) but potentially higher prices because consumer choice is limited.

And the attractiveness of low-tax provinces?

Well, it’s kind of like trying to lure professional sports teams that move to wherever the latest best deal is. If you can move to the cheapest, you do.

But if you are mobile like that — if your business operates as well in Newfoundland as it does in Los Angeles or Vancouver — you move away just as quickly. Usually, in fact, you move as soon as there’s a better deal.

As an economic model, lowering corporate taxes has been a bit of a bust — and the pinch that has resulted is being passed on to the average Canadian citizen in cost-cutting measures.

Being competitive is one thing; being a corporate tax doormat is something else again.

Our part in the battle to the bottom of corporate tax rates should be looked at in a much broader context. When the provincial government was challenged on the fact that it spends far more per capita on health care than anywhere else in the country, the immediate argument was that we are different, that we’re a small population spread over a large area, and because of that, ordinary rules didn’t apply.

It’s a shame that the province doesn’t look at its tax structure in the same way.

And maybe, just maybe, we should be drinking a little of that Alberta water. Having the lowest taxes around might be a great T-shirt slogan — but the real cost of having those low tax rates could mean losing the shirt right off your back.

 

Russell Wangersky is The Telegram’s

editorial page editor. He can be reached by email at rwanger@thetelegram.com.

Organizations: Parkland Institute, University of Alberta

Geographic location: Alberta, Canada, Newfoundland Los Angeles Vancouver

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Recent comments

  • scrutiny
    March 12, 2013 - 09:24

    Ah yes, Maurice the one trick pony blurbs again.

  • Anon
    March 09, 2013 - 19:21

    Taxes are unconstitutional and only made necessary by an unlawful monetary system controlled by the private bank of Canada also known as the 13th branch of the Federal Reserve Bank. But no one talks about that.

  • swell
    March 09, 2013 - 18:59

    Maybe this should be a mandate too. Like muskratfalls, maybe this deficit, mismanagement, cuts, layoffs, hiring freezes is what they think we mandated the elected government to do!

  • grisha
    March 09, 2013 - 13:19

    As with many of your missives you tend to focus on one piece of a puzzle and use it to construct an overall conclusion as to the nature of the whole. I have worked for and with land developers, data center owners, ranchers and various other businesses and would not trade the experience for the world. I have observed their budgetary processes, proformas and other planning and accounting inquiries to determine if an effort will create a profit to distribute to folks so they can spend it on necessities of life produced by others. Guess what, all of these analysises have taxes as a line item in the expense column and in more than one place. They show not only the income taxes that you dwell on but also sales taxes, property taxes, franchise taxes and sometimes others. At some point any of these cost items, including taxes, can choke off the project and, thereby, the effort and the product. It might interest you to know that most political units intending to improve themselves offer tax breaks as incentives to businessmen and entrepreneurs to commence or relocate operations in their locales. You seem to have no concept of these as well as many other details necessary to understand the process. Your method is akin to looking into one window of a rather large house and making global and universal conclusions as to the make up of the whole. I also find it strange that someone who has in the past offered a good deal of criticism of governmental entities, their spending habits and general operation, to advocate so strongly to allocate more capital and assets to them.

    • Corporate Psycho
      March 11, 2013 - 19:44

      U lost me after "missive". Zzzzzzz

    • Corporate Psycho
      March 11, 2013 - 19:45

      U lost me after "missive". Zzzzzzz

  • Danny
    March 09, 2013 - 11:20

    Finally some sense...taxes are pretty low in rest of Canada as it is anyways.Even here in Nfld.People like to whine about tax hikes but look @ what it helps ..beautiful well maintained roads & sidewalks.A non -existent crime area with no drugs.A almost calm atmosphere where every citizen respects the laws of the land.No one honks horns or cuts you off.There are people holding doors and Thank you's @ every turn.Yes taxes here have created a paradise :)

  • Maurice E. Adams
    March 09, 2013 - 07:50

    The "losing the shirt part" comes with Muskrat Falls.