The 10/10 tax cut plan

Sélectionnez une archiveLettres d'opinion 2012Lettres d'opinion 2011Lettres d'opinion 2010Lettres d'opinion 2009Lettres d'opinion 2008Lettres d'opinion 2007Lettres d'opinion 2006Lettres d'opinion 2005Michel Kelly-Gagnon, president of the Conseil du patronat du Québec
National Post, 8 février 2008, p. FP-13


As the saying goes: the more you tax something, the less of it you can expect to get. Everybody seems to understand this logic when governments decide to increase taxes on certain products considered detrimental to our health, like cigarettes and fatty food. Economic agents do indeed react to incentives, and the more costly, or the less profitable, something gets, the more they are discouraged to use it.

This logic also applies to corporate taxes. At a fundamental level, a business is simply a network of contractual relations that connect people together with the goal of producing something. If this wealth-creation process is burdened by high levels of taxation, fewer people will be encouraged to create and invest in businesses, or they may decide to do it elsewhere. And ultimately, this means less prosperity for everyone.

It seems this logic is being increasingly understood across the world. Among members of the OECD, five lowered their taxes in 2006, seven did last year and eight at the beginning of this year.

Canada belongs to the list. In his Economic Statement last fall, Finance Minister Jim Flaherty announced a gradual reduction in the rate of corporate income tax from 22% (including the surtax) to 15% in 2012-13. Ottawa also asked provinces, where rates vary from 10% to 16%, to lower their rates to 10% so as to achieve a combined rate of 25% across the country in five years.

The Conseil du patronat du Quebec evidently applauded this effort to increase business competitiveness. But in a race where others are sprinting, should we be satisfied that Canada is walking at a brisk pace?

It is true that with a 25% corporate tax rate, we will find ourselves five years from now in an enviable position compared with other large industrial countries – if no one moves further until then. All other G7 countries will then have higher rates, from 28% in the U. K. to 42% in Japan.

But let's compare ourselves with the more agile runners instead. We all have heard of the success of Ireland, which has gone from one of the poorest to one of the richest countries of Europe in the past decades. One of the major factors that contributed to this spectacular growth is its 12.5% rate of corporate taxation. Several other small European countries have recently adopted very advantageous rates, including Hungary (16%), Slovakia (19%), Romania (16%) and Latvia (15%).

As we can read in Mr. Flaherty's statement: "We can expect that many of the countries that Canada competes with for investment will continue reducing business taxes in the years to come. That is why it is crucial that we take the bold actions needed to ensure Canada's business tax competitiveness."

So why not be a little more audacious? If we aimed at a combined rate of 20% instead for 2012-13, (that is, 10% for each), Canada would find itself below the average level in OECD countries. It would consolidate its advance among the large economies and compare advantageously with the most dynamic small countries.

Can we afford another tax cut of this size without jeopardizing the budget equilibrium? Despite the talk in Ottawa that the coffers are empty, there is no doubt that the answer is yes. This further reduction in tax rates would lower the federal government's revenues by only about $2-billion each year over the next five years.

Mr. Flaherty is planning to devote $10-billion to debt reduction this year. And in his statement, he noted that next year revenues from corporate taxes should exceed those forecast in last year's budget by $5-billion. Why not give back some of these additional revenues to the Canadian businesses that pay them?

This 10/10 plan would send a clear signal that Canada is the best place to invest among large economies, while remaining competitive with the smaller and more agile runners. It's a simple and clear goal, which would give Ottawa a more convincing argument to convince provinces that they should adjust their rates to equal the federal one. And it would undoubtedly garner enthusiastic support among the business community.