Business Leaders Say Rollback of Corporate Tax Cuts Threatens Investment, Jobs and Social Programs

April 26, 2005

The federal government’s agreement in principle with the New Democratic Party to roll back corporate tax cuts sends a message to the world that Canada is losing interest in competing for investment and jobs, says theCanadian Council of Chief Executives (CCCE).

The tax cuts of the past five years have had a dramatic impact in stimulating job creation, raising incomes and boosting tax revenue for governments, but as Prime Minister Paul Martin himself has acknowledged, the world is changing quickly and radically, said the CCCE, a non-partisan organization composed of the chief executives of 150 leading Canadian enterprises.

“Governments around the world increasingly are turning to tax policy as the most effective tool in their arsenals for attracting new investment, accelerating economic growth, raising family incomes and funding social programs,” said CCCE Chief Executive and President Thomas d’Aquino.

The C.D. Howe Institute noted in a new study released today that the corporate tax cuts in the 2005 budget combined with those of earlier years will stimulate $56 billion in capital investment by Canadian businesses, raising Canada’s Gross Domestic Product by $5 billion a year and creating 340,000 jobs at little fiscal cost to Canadian governments.

Since 1997, 25 of the 30 member countries of the Organisation for Economic Co-operation and Development have cut corporate taxes: Italy by 16 percentage points, Germany by 13 points; Japan by 9 points; France by 8 points and the United Kingdom by three percentage points to the lowest rate in the industrialized world.  Germany recently announced a further cut of 8 percentage points, while the United States will reduce its tax rate on manufacturing by more than three percentage points by 2010.

According to the IMD World Competitiveness Yearbook, Canada has the fourth highest corporate tax rate of the 60 countries it measures, yet ranks only 33rd in terms of corporate tax revenue as a share of the economy. Ireland, with a tax rate of just 12.5 percent, collects proportionately 25 percent more revenue than Canada.

“In today’s world, high corporate taxes simply don’t pay. Low corporate tax rates do more than accelerate growth by encouraging business investment. They also attract more companies that make more money and at the end of the day generate more revenue for governments,” Mr. d’Aquino said.

The C.D. Howe study estimated that a percentage point reduction in corporate income tax rates actually increases the size of the corporate tax base by four percentage points.  This is consistent with Canada’s experience: in 2003, when Canada’s corporate tax rate fell by two percentage points, federal revenue from corporate taxes grew by more than $5 billion or 23 percent.

“By reneging on the corporate tax cuts in the 2005 budget, the deal announced today will sacrifice Canada’s ability to foster more high-paying jobs and to ensure that our economy grows fast enough to pay for the massive federal commitments to expanding social programs and equalization payments,” Mr. d’Aquino said.

The CCCE also criticized the deal’s attempt to divide the business community by exempting small and medium-sized businesses from the rollback of corporate tax cuts.

“Large companies are the country’s drivers of innovation, productivity, research, employee training and exports.  Large companies are major customers for Canada’s smaller businesses.  And surely our goal as a country should be to encourage as many of our small businesses as possible to grow into larger ones,” Mr. d’Aquino said.

He noted that the federal government has until today recognized the critical contributions to the wellbeing of Canadians played by companies of all sizes.  A series of recent quotes from major federal documents and speeches by key ministers is attached.

“Today’s announcement suggests that the government is repudiating what has been a consistent commitment to fostering a business climate that will provide a sound base for Canadian companies trying to compete and to grow in the global economy,” Mr. d’Aquino said.

Mr. d’Aquino said the non-partisan CCCE recognizes that in the current volatile political environment, any statement by business leaders could be misinterpreted as a partisan intervention.  “I want to make it clear that our opposition to today’s announcement on the rollback of corporate tax cuts is simply a message to all parties about what we as business leaders believe to be bad policy that does not serve the interests of Canadians.”

He added that the rollback of the one fiscal commitment in the 2005 federal budget devoted to reinvesting in Canada’s future growth sends a signal that there is a need for the business community to speak out on behalf of sound, long-term policy.

“We will be taking further steps in the weeks ahead to fill what we see as a dangerous void in the public debate about where Canadians want to go in the decade ahead and what kind of decisive choices we will need to make if we are to turn a bold vision of a better future for Canadian families into concrete reality.”

The CCCE’s member chief executives head companies that collectively administer close to $2.5 trillion in assets, have annual revenues of more than $600 billion and account for a significant majority of Canada’s private sector investment, exports, training and research and development.

In addition to Mr. d’Aquino, the members of the CCCE’s Executive Committee are: Chairman Richard L. George, President and Chief Executive Officer of Suncor Energy Inc.; Honorary Chairman A. Charles Baillie; and Vice-Chairmen Dominic D’Alessandro, Paul Desmarais, Jr., Jacques Lamarre, Gwyn Morgan and Gordon Nixon, the chief executives respectively of Manulife Financial, Power Corporation of Canada, SNC-LAVALIN Group Inc., EnCana Corporation and Royal Bank of Canada.

IN THEIR OWN WORDS:

RECENT FEDERAL STATEMENTS ON THE IMPORTANCE OF COMPETITIVE CORPORATE TAXES

“To sustain the growth which drives our economy and enables us to meet the needs of our society, we need to ensure a competitive corporate tax system too — one that will allow us to attract the kind of investment that stimulates growth and creates well-paying jobs for Canadian workers.”

Finance Minister Ralph Goodale
Budget Speech, February 2005

“The budget recognizes the importance of a productive, innovative, strong economy.  It recognizes that only an economy running on all cylinders can carry the freight of social programs that define us as a nation.”

Industry Minister David Emerson
Vancouver, February 25, 2005

“The drivers of international and domestic competitiveness are one and the same: our economy, and every player in it, must be supported by an open, secure and competitive business climate in Canada.”

A Role of Pride and Influence in the World
Canada’s International Policy Statement, April 2005

“To improve the living standards of Canadians, it is important that Canada’s tax system contribute to a business environment that fosters investment and economic growth.  The tax system best encourages productive investment by having low tax rates that are common across all sectors, and an efficient tax structure that is neutral and does not interfere with the efficient allocation of resources.”

The Budget Plan 2005

“Improving the competitiveness of the tax system is particularly important at a time when most industrialized countries are significantly reducing their corporate tax rates.  Last year the U.S. legislated a plan to reduce its corporate tax rate on manufacturing income by an equivalent of 3.15 percentage points by 2010. Ensuring the competitiveness of Canada’s business taxes vis-à-vis the U.S. is particularly important because our economies are highly integrated.”

The Budget Plan 2005