Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • Charting a path to $15/hour for all BC workers November 22, 2017
    In our submission to the BC Fair Wages Commission, the CCPA-BC highlighted the urgency for British Columbia to adopt a $15 minimum wage by March 2019. Read the submission. BC’s current minimum wage is a poverty-level wage. Low-wage workers need a significant boost to their income and they have been waiting a long time. Over 400,000 […]
    Canadian Centre for Policy Alternatives
  • CCPA-BC joins community, First Nation, environmental groups in call for public inquiry into fracking November 5, 2017
    Today the CCPA's BC Office joined with 16 other community, First Nation and environmental organizations to call for a full public inquiry into fracking in Britsh Columbia. The call on the new BC government is to broaden a promise first made by the NDP during the lead-up to the spring provincial election, and comes on […]
    Canadian Centre for Policy Alternatives
  • Income gap persists for racialized people, recent immigrants, Indigenous people in Canada October 27, 2017
    In the Toronto Star, CCPA-Ontario senior economist Sheila Block digs into the latest Census release to reveal the persistent income gap between racialized people, recent immigrants, Indigenous people, and the rest of Canada.
    Canadian Centre for Policy Alternatives
  • CCPA in Europe for CETA speaking tour October 17, 2017
    On September 21, Canada and the European Union announced that the Comprehensive Economic and Trade Agreement (CETA), a controversial NAFTA-plus free trade deal initiated by the Harper government and signed by Prime Minister Trudeau in 2016, was now provisionally in force. In Europe, however, more than 20 countries have yet to officially ratify the deal, […]
    Canadian Centre for Policy Alternatives
  • Twelve year study of an inner-city neighbourhood October 12, 2017
    What does twelve years of community organizing look like for a North End Winnipeg neighbourhood?  Jessica Leigh survey's those years with the Dufferin community from a community development lens.  Read full report.
    Canadian Centre for Policy Alternatives
Progressive Bloggers

Meta

Recent Blog Posts

Posts by Author

Recent Blog Comments

The Progressive Economics Forum

Corporate Taxes and Investment in Ontario

Last week, Ontario’s Ministry of Finance released the Ontario Economic Accounts for the third quarter of 2011. As The Globe reported, business investment was less than impressive:

. . . investment in machinery and equipment fell slightly by 0.2 per cent between June and September, 2011, prompting Ontario Finance Minister Dwight Duncan to fire a shot across the bow of corporations.

Mr. Duncan said Ontario has the most competitive tax system in North America thanks to reforms introduced by the governing Liberals that have eliminated capital taxes and reduced the corporate rate to 11.5 per cent from 14 per cent in 2010. The rate is set to decline further, to 11 per cent this June and 10 per cent in June, 2013.

“I expect businesses to invest and create jobs,” Mr. Duncan said. “They’ve got to step up to the table and invest here in Ontario.”

As Duncan waits impatiently for a deluge of investment following his recent corporate tax cuts, he should consider that corporate tax rates have been falling for more than a decade. The Ontario Economic Accounts show that we are still waiting for the promised pickup in business investment.

Last week, I presented the following table to the Commission on Quality Public Services and Tax Fairness. It displays Ontario’s provincial corporate income tax rate, the combined federal-Ontario corporate income tax rate, and business investment in machinery and equipment as a share of provincial Gross Domestic Product at market prices. The 2011 figure covers the first three quarters.

Year

Ontario CIT

Combined CIT

Investment / GDP

1999

15.5 %

44.6 %

8.3 %

2000

14.5 %

43.6 %

8.0 %

2001

14.0 %

42.1 %

7.6 %

2002

12.5 %

38.6 %

6.8 %

2003

12.5 %

36.6 %

6.6 %

2004

14.0 %

36.1 %

6.5 %

2005

14.0 %

36.1 %

6.7 %

2006

14.0 %

36.1 %

6.8 %

2007

14.0 %

36.1 %

6.3 %

2008

14.0 %

33.5 %

6.4 %

2009

14.0 %

33.0 %

5.5 %

2010

12.0 %

30.0 %

5.6 %

2011*

11.5 %

28.0 %

6.0 %

The Harris government enacted a schedule of deep corporate tax cuts in 2000, but the Eves government delayed further cuts in 2002. In 2003, the McGuinty government legislated a partial reversal of these cuts as of 2004. In budget 2009, it announced a new schedule of corporate tax cuts, starting in 2010.

Despite the McGuinty government’s inconsistent policy, the overall corporate tax rate for Ontario business declined steadily because of federal cuts. The combined rate has fallen by well over a third since 1999.

Meanwhile, business investment in machinery and equipment is down by more than a quarter, relative to the broader provincial economy. Investment has fluctuated with the business cycle, plummeting during the financial crisis and partially recovering since then.

It would be difficult to conclude from the empirical evidence that the past decade of corporate tax cuts has boosted investment in Ontario. I set out some theoretical explanations for this policy failure in The Ottawa Citizen a few months ago.

A better approach would be for the Ontario government to restore a 14% provincial corporate tax rate and invest the additional revenue directly or fund incentives tied to private investment in the province. With the federal corporate tax rate down to 15% this year, fully reversing McGuinty’s corporate tax cuts would produce a combined rate of 29% – lower than Ontario’s combined rate had been until last year.

Enjoy and share:

Comments

Comment from Kev
Time: January 23, 2012, 4:15 pm

I think we’re whistling past the graveyard here. Our governments already know all this, the truth is they just don’t care. They answer to a higher power than us.

Comment from Travis Fast
Time: January 23, 2012, 4:30 pm

My god investment is pro cyclical and in secular decline regardless of the secular decline in corporate taxes. That means capital must have given all the money they saved to their workers as it is workers who pay corporate taxes.

Click for an inside joke:
http://www.youtube.com/watch?v=wNf9rEPoc8Q

Write a comment





Related articles