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Business Tax Relief Is Crucial To Canada’s Economic Success

Business Tax Relief Is Crucial To Canada’s Economic Success

Perrin Beatty– Report by Perrin Beatty, President, Canadian Chamber of Commerce
Over the last decade, the Canadian Chamber has led the call for a more competitive tax system, and governments of different political stripes have delivered. There are now ominous signs in Ottawa that this progress may be lost. As Canada emerges from a global recession, our political leaders are searching for strategies to balance the books. Some are proposing to scrap or delay the legislated cuts in corporate income tax rates which have been a central aspect of the federal fiscal plan since being announced in 2007.

What This Means For Canadian Business

This action would have the effect of adding back about $4.5 billion of taxes over the next two years which businesses were told they would not have to pay. Such a reversal will negatively affect investor and business confidence just as the economy is emerging from recession.

Canadian businesses have invested in new employees and technologies expecting taxes will be reduced. Business taxes are one of the most economically destructive mechanisms for raising revenue.

Economists Duanjie Chen and Jack Mintz recently calculated that the economic cost of giving up the three-point reduction in the federal corporate income tax would be a loss of billions of dollars in capital investment and more than 200 thousand jobs.

Canadian competitiveness
Globalization has sharpened competition. Skilled workers, businesses and capital move easily across national borders, seeking the best economic opportunities. In response, even as they faced rising deficits in the recession, most of our trading partners have continued to drive down taxes to improve their global competitiveness.

Between June 2008 and June 2009, forty-five economies reduced the tax burden on businesses, broadened the tax base and/or made it easier to pay taxes, a twenty five percent increase from the previous year. Twenty reduced corporate income tax rates and nine reduced labour tax rates.  At the Seoul G20 Business Summit, the prime ministers of Australia and Britain both stressed their plans to make further cuts to corporate taxes.

Canada must also continue to improve its tax competitiveness. Higher business costs make our country less attractive as a place to invest, expand and innovate. They drive companies from Canada to low tax rate jurisdictions.

Stimulus is ending
Governments are tapped out. Stimulus programs are ending, but the economic recovery is fragile. The timing of the tax cuts allows a significant fiscal injection into the Canadian economy without relying on government spending, with its accompanying administrative overheads.

Advocates of higher taxes suggest that keeping government revenues high will attack high deficits. But vigorous growth stimulated by smart tax policies brings far more revenue as employment grows, consumer demand rises and investment increases.

Key Message

Parliament must stand by its decision
The decision to make Canada a more competitive tax environment was announced in the 2007 Economic Plan and reaffirmed twice in federal budgets. Businesses across Canada have invested with the understanding that Canadian taxes would decline. A sudden change of course would constitute a broken promise to thousands of businesses and the many people they have employed based on that promise.

The Chamber encourages you to speak out, write to the Minister of Finance on this issue, copying the leaders of the other political parties to ensure all sides of the House of Commons are aware of the importance of this issue. Attached is a short briefing note which contains some of the arguments the Canadian Chamber of Commerce has been expressing in Ottawa.

Please address your letters to:

The Honourable James Flaherty
Minister of Finance
House of Commons
Ottawa, Ontario  K1A 0A6

The Honourable Michael Ignatieff
Leader of the Her Majesty’s Loyal Opposition
House of Commons
Ottawa, Ontario  K1A 0A6

The Honourable Jack Layton
Leader of the New Democratic Party
House of Commons
Ottawa, Ontario  K1A 0A6

The Honourable Gilles Duceppe
Leader of the Bloc Quebecois
House of Commons
Ottawa, Ontario  K1A 0A6