Opinion: Why Slashing Corporate Tax Rates Was Detrimental to Ordinary Canadians

January 30, 2014

As published on huffingtonpost.ca

A Canadian Labour Congress research report shows that, due to lavish tax breaks, the largest of Canada’s non-financial corporations had paid their entire share of taxes to all levels of government in 2012 by the end of January. We call that Corporate Tax Freedom Day.

Since 2000, the general federal corporate income tax rate has been cut almost in half, from 28% to 15 per cent, and provinces have also been dropping their tax rates on corporate profits. Corporate income taxes in 2012 amounted to only 7.85 per cent of all government revenues, down from 10.1 per cent in 2000, and an average of 11 per cent in the 1960s and 70s.

The Conservative government and special interest groups claim incessantly that cutting corporate income taxes is good for the economy and for individual Canadians. We have been led to believe that tax giveaways to corporations would lead companies to reinvest in research and development as well as machinery and staff training to boost productivity. This is supposed to stimulate economic growth and create better paying and more secure jobs. But that is not what has happened in Canada during the past decade.

Let’s look at the record since 2000, when the drive to slash corporate taxes began.  The average annual economic growth between 2000 and 2012 was 1.14 per cent, one of the longest periods of low economic growth in decades. Business investment in research and development has fallen from 1.13 per cent of GDP in 2000 to 0.88 per cent of GDP in 2012. Investment in employee training and skills development is down by 40 per cent since the 1990s. The amount spent on training per employee in Canada in 2010 was $688; in the U.S it was $1,071. And now, taxpayers will get the privilege of subsidizing companies for employee training, with the federal government’s proposed Canada Jobs Grant.

As a labour leader, I am particularly concerned about the number and quality of jobs that are being created in Canada, and the news is not good. Officially, there were 1.38 million unemployed Canadians in December 2013. That compares to 1.1 million unemployed in October 2008, just prior to the recession. Today’s official unemployment rate of 7.2 per cent remains well above the pre-recession rate of 6 per cent — but the real rate is much higher.

The jobs that have been recovered are disproportionately part-time and precarious. Part-time jobs grew at twice the rate of full-time jobs, and account for 40 per cent of the job growth between 2008 and 2013. Part-time positions make up 19 per cent of all jobs. All of the growth in part-time jobs was involuntary, where job seekers are looking for full-time work but can only find part-time hours. Over 20 per cent of all jobs are low wage, and the minimum wage hasn’t kept pace with inflation in most provinces. That’s a major reason why child poverty continues to be a problem in Canada. Children are poor because they have poor parents — and one-third of all children in poverty live in households where at least one parent works full-time at a low-wage job. The ranks of the working poor in Canada are increasing, not decreasing.

Good, family-supporting jobs are the key to Canada’s economic success and corporate tax cuts aren’t delivering. In fact, corporate tax cuts have delivered nothing, except windfall profits that haven’t benefited the ordinary Canadians who paid for them.

The years of tax giveaways have, indeed, been good for business. Their after tax profit margins rose from 6.9 per cent in 2000 to 8.1 per cent in 2012, and now we know what they have been doing with the money. Between 2000 and 2012, the total cash reserves of private, non-financial private corporations in Canada grew from $182 to $541 billion, an increase of over 300 per cent. During the same period, CEO pay went sky-high. The average CEO compensation at Canada’s largest non-financial corporations averaged $7.96 million in 2012.

Corporate tax giveaways mean that the federal government has foregone billions of dollars in revenues. To pay for the tax breaks, Ottawa has borrowed billions of dollars and driven up the national debt. Now, the government has chosen to make big cuts to public services essential to Canadians in order to pay the bill for its tax giveaways.

We hold Corporate Tax Freedom Day to draw attention to the failure of business to deliver on its promises to Canadians. Clearly, slashing corporate tax rates did not produce the expected outcomes. No strings attached corporate tax cuts are a cruel and very expensive hoax and we should demand our money back.

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