Flaherty reneges on election promise…but not on his commitment to big business
Minister of Finance Jim Flaherty delivered his economic update before the Calgary Chamber of Commerce today, and now admits that “[w]e have to be realistic about what’s going on in the world.”
For Flaherty and the rest of the clan behind Canada’s Economic Action Plan, November has so far been a rather lousy month. Just last Friday, Statistics Canada revealed that in October the country shed 54,000 jobs, the greatest monthly loss since March 2009. And now a key promise from the seven-month old May 2011 election—that the federal government’s books would be balanced by 2014-15—will not be fulfilled until, Flaherty claims, 2015-16, when a $600 million surplus will be registered.
He also claims that “we will not be bound by ideology when it comes to making decisions to keep our economy strong and protect Canadians, their financial security and their jobs.” This is a markedly curious statement, for the Harper regime has been absolutely ideological in pursuing an agenda of corporate tax cuts, which it argues will promote greater investment in the economy by corporations, resulting in more jobs.
In 2006, when the Conservatives first came to power, the statutory federal corporate income tax (CIT) rate—applicable only to profit, unlike personal income tax—stood at 21%. As of January 2012, that rate will have decreased to 15%. Combined with provincial tax—say, in the province of Ontario, which has a general rate of 12%—the effective CIT would be 27%. In contrast, many Canadians might be surprised to learn that the US federal CIT rate stands at a much higher 35%.
To be sure, this precipitous decline in the CIT rate began much before the Conservatives assumed power. Beginning in 2000, the Liberals under Jean Chrétien cut the CIT from 28% to 21% in 2004. Indeed, both of these parties are in bed with big business. But the worse part is that these big business tax cuts don’t even lead to more jobs.
An April 2011 study from the Canadian Centre for Policy Alternatives (CCPA) tracks Canada’s largest companies over the 2000-2009 period and finds that though their combined profit increased by 52% in that period, they paid 20% less tax. If one were to subscribe to the standard Conservative-Liberal dogma, one would think that these companies successfully invested the saved money into job creation. Not so, says the CCPA. Over the 2005-2010 period, these same companies reported 5% growth in staff (both in Canada and at overseas operations), while the Canadian economy recorded 6% employment growth. In other words, big business underperformed the broader economy in generating employment despite the profound tax breaks.
What is more, Statistics Canada reports that as of the second quarter of 2011, private non-financial corporations are hoarding a pile of cash totaling $476.6 billion—about $325 billion in Canadian currency, and another $151 billion in foreign currencies.
All this begs the question: if a decade of evidence shows that these big corporations can’t translate massive tax breaks into an above-average (or even average) job creation rate, and if they are, in any case, already sitting on close to half a trillion dollars in cash, what sound argument can be made to continue with, or even maintain, these tax cuts?
According to the government’s own 2009 budget calculations, business tax cuts introduced since 2006 will mean $60.2 billion less in federal revenue over the 2008-2014 period, money that could have dramatically advanced the date by which the federal budget would be balanced, presumably staving off cuts to the public service…..but as Flaherty said, “we will not be bound by ideology…”