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  • Report looks at captured nature of BC’s Oil and Gas Commission August 6, 2019
    From an early stage, BC’s Oil and Gas Commission bore the hallmarks of a captured regulator. The very industry that the Commission was formed to regulate had a significant hand in its creation and, too often, the interests of the industry it regulates take precedence over the public interest. This report looks at the evolution […]
    Canadian Centre for Policy Alternatives
  • Correcting the Record July 26, 2019
    Earlier this week Kris Sims and Franco Terrazzano of the Canadian Taxpayers Federation wrote an opinion piece that was published in the Calgary Sun, Edmonton Sun, Winnipeg Sun, Ottawa Sun and Toronto Sun. The opinion piece makes several false claims and connections regarding the Corporate Mapping Project (CMP), which we would like to correct. The […]
    Canadian Centre for Policy Alternatives
  • Rental Wage in Canada July 18, 2019
    Our new report maps rental affordability in neighbourhoods across Canada by calculating the “rental wage,” which is the hourly wage needed to afford an average apartment without spending more than 30% of one’s earnings.  Across all of Canada, the average wage needed to afford a two-bedroom apartment is $22.40/h, or $20.20/h for an average one […]
    Canadian Centre for Policy Alternatives
  • Towards Justice: Tackling Indigenous Child Poverty in Canada July 9, 2019
    CCPA senior economist David Macdonald co-authored a new report, Towards Justice: Tackling Indigenous Child Poverty in Canada­—released by Upstream Institute in partnership with the Assembly of First Nations (AFN) and the Canadian Centre for Policy Alternatives (CCPA)—tracks child poverty rates using Census 2006, the 2011 National Household Survey and Census 2016. The report is available for […]
    Canadian Centre for Policy Alternatives
  • Fossil-Power Top 50 launched July 3, 2019
    What do Suncor, Encana, the Royal Bank of Canada, the Fraser Institute and 46 other companies and organizations have in common? They are among the entities that make up the most influential fossil fuel industry players in Canada. Today, the Corporate Mapping Project (CMP) is drawing attention to these powerful corporations and organizations with the […]
    Canadian Centre for Policy Alternatives
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1% Small Business Tax: A Bad Idea Returns

Liberals are proposing to slash Nova Scotia’s corporate income tax rate for small business from 5% to 1%.

We have seen this movie before. New Brunswick announced a 1% small business rate by 2007 only to instead restore a 5% rate that year. Nova Scotians might reasonably ask why their provincial neighbour abandoned the 1% plan.

Part of the story is that New Brunswick’s 2007-08 budget increased taxes overall, including personal income taxes and general corporate taxes. However, New Brunswick has since unveiled a tax-cutting binge that notably maintains the small business rate at 5%.

There are solid public-policy reasons for not slashing small business rates. A major purpose of corporate income taxes is to prevent business owners from incorporating simply to avoid paying personal income taxes.

If corporate tax rates equal personal tax rates, then the government collects the same revenue regardless of whether income is generated inside or outside a corporation. By contrast, a 1% tax rate gives small business owners a strong incentive to keep income within their corporations to avoid or delay paying significantly higher personal tax rates.

An ultra-low small business tax also encourages business to organize itself as many small corporations rather than fewer large corporations. In particular, it provides an incentive for large corporations to contract out activity rather than performing it in-house. Such contracting to small business not only reduces tax revenues for the public, but usually also reduces wages and benefits for the workers involved.

Even the C. D. Howe Institute’s tax-cutting gurus recognize the perils of an excessively low small business rate:

Tax reductions have also been targeted to small businesses, thereby creating greater opportunities for personal and corporate tax avoidance. A notable exception: New Brunswick, which is revising its far-too-low small business corporate income tax rate, boosting it from 1 to 5 percent.

The small business rate applies to every Canadian-controlled private company’s first half-million dollars of profit. (Nova Scotia’s threshold is currently $400,000, but the upcoming provincial budget will almost certainly raise it to $500,000 in line with the last federal budget.) Therefore, a lower “small business” rate delivers the largest tax breaks to relatively large and profitable private companies.

Why have Nova Scotia Liberals put forward this policy? One explanation is that they are heading toward a provincial election and small business is a very vocal and popular political constituency. The third paragraph of their press release provides another explanation: “a broad-based tax cut will do more to stimulate the economy than a tax credit for manufacturers alone.”

This shot is obviously aimed at the Nova Scotia NDP’s proposed manufacturing and processing tax credit. Such a refundable credit is, in fact, a far superior policy because it is tied to tangible investment and available to enterprises that are not currently profitable. Increased manufacturing investment would expand opportunities for small business to sell goods and services to manufacturers and their employees.

The NDP would provide a refund to every corporation that invests in Nova Scotia manufacturing, regardless of whether it is private or publicly traded. The Liberals would provide a tax break to every profitable private corporation, regardless of whether or not it invests in Nova Scotia.

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