The election drums are beating. The political parties are drawing their lines in the sand, and the budget is the primary issue of contention. One issue of particular controversy deals with corporate tax cuts. The Conservative position is that these are both good for Canada and necessary. They will build confidence in our economy and encourage businesses, in particular overseas investors, to spend in Canada. This will then have the knock-on effect of creating more jobs, stimulating our economy.
Optimistic words from Finance Minister Jim Flaherty. But then, that is his job: to create a sense of confidence in our economy. Nowhere does he explain how this will work. It just seems like some economic incantation, reminiscent of the Reagan-era in the U.S., which will work magic for Canada. With a lower tax rate, companies will flock to our more ‘competitive’ tax regime, enamoured with our neo-liberal ideals, and we all win. Just look how well these policies have worked for the U.S.
On the other side of the house, the solution is to invest in ourselves. We need to develop infrastructure through expenditures on education, families and social programs, which will give us the competitive advantage over other states. It is this that will encourage foreign investment into Canada, creating more jobs and producing a healthy economy. Just look at the advantage our auto industry had over the U.S., with lower health care costs in Canada. This strategy, however, requires tax dollars, which cannot accommodate tax cuts for ‘corporate citizens.’
In truth, neither of these approaches have been proven to work. We just have to accept their ideas on ‘blind faith.’ Overseas investors, apart from them buying stocks and shares in Canadian companies, are not lining up to build manufacturing businesses in Canada. Our employment costs are too high. In fact, what they are willing to invest in are our natural resources, taking those resources and profits out of Canada. They will invest in those anyway, so why should we reward such companies directly through corporate tax cuts? Why should we, as Canadians, build the infrastructure, which these foreign companies will benefit from as ‘free-riders’?
How do we benefit through these fiscal promises? We are not hearing these political parties promising us tax cuts, yet we are the engine of Canada’s economy. We are the consumers in a consumer-driven economy. So where is our reward? Higher debt loads?
As Mark Carney has recently indicated, Canadians are deeper in debt. This has been blamed on the ‘cheap’ money available because of low interest rates. Yet, we were encouraged to buy our way out of this latest financial crisis — a predicament that was not of our own making. Still, these are prudent words from the Bank of Canada. But why do we have to borrow more money, incur more debt, to help these wealthy businesses, both domestic and foreign? Why not offer the tax cuts to Canadians directly?
Two-thirds of Canada’s economy is based on tertiary industry — the buying and selling of goods and services. It is here where the government, whichever party is in power, can raise revenues. To encourage spending, however, more capital has to be available. So lower the tax rate on Canadians, abolish it for lower-income Canadians (those earning less than $40,000). This will put more money in the Canadian consumers’ pockets, and the evidence shows that most of this will be spent directly in our economy. Surely, this idea has just as much merit as the trickle down theories presented to us already. For when the ‘rich’ are given tax breaks, one can rest assured that what is trickling down may not be that pleasant.
John Kennair is an international consultant and doctor of laws who lives in St. Albert.
