Dion vs Harper: Who will be corporate Canada’s sweetheart?

Erin’s post that Liberal leader Stephane Dion wants more corporate tax cuts reminded me of a recent backgrounder from the Library of Parliament on corporate taxes. The primer has a nice table (that will not reproduce nicely in this space) showing federal corporate income tax rates going back to 1960. In both 1960 and 1970 – back when Canadian productivity growth was higher than recent decades and higher than US rates, it should be mentioned – the rate was just over 40%. In 2007, it is almost half that, at 21%. And the schedule is for corporate income tax cuts each year from now to 2011, at which point they will be 18.5% (and no surtax).

So does Dion really mean that he wants to cut corporate taxes by even more than this? And on what basis would he argue that this is going to have any effect on the Canadian economy?

Skeptics out there will say that these are just the statutory rates. As the backgrounder explains, Finance officials are obsessed with the abstract notion of marginal effective tax rates (see this post for a critique and also this one):

The marginal effective tax rate (METR) … represents the proportion of the rate of return on a marginal investment that accrues to governments.  The calculation of METRs usually includes not only statutory corporate tax rates, but also retail sales taxes on business inputs, investment tax credits and other incentives, capital cost allowance rates, inventory accounting methods, capital taxes and the ability to deduct interest costs.

The notion of METRs has influenced policy discussions, perhaps most notably beginning with the tax reform of 1987 and continuing with the recommendations of the Technical Committee on Business Taxation in 1998.  More recently, in Advantage Canada, the federal government proposed to establish, by 2011, the lowest METR in the Group of Seven (G7) countries.  As shown in Figure 3, once the federal corporate tax reductions are fully implemented in 2011, the government expects that Canada’s METR will be the third lowest among the G7 countries.

There is an argument to be made that it is better to tax the owners of capital (though highly progressive income taxes or even a wealth tax) than the users of capital (through corporate income and capital taxes). I might even have some sympathy for this argument if revenue-neutral tax increases on the wealthy were on the table. But of course they are not.

Similar remarks could be made for Dion’s push for greater deregulation. Even though deregulation has been on the agenda since Mulroney was in power, it continues to crop up in many forms, including harmonization initiatives with the US under the Orwellian-named Security and Prosperity Partnership. On April 1, the Conservatives released a new regulatory policy, the Cabinet Directive on Streamlining Regulation, which aims to make it much more difficult to pass, and then keep, public interest regulations. This is not a Harper initiative per se; back under the Liberals, it was the “smart regulation” file, and the draft new policy was called the Government Directive on Regulating (see my paper with Bruce Campbell if you are interested in more details). Harper has merely abandoned the “smart regulation” language in favour of rhetoric about real regulation that is disingenuous compared to the actual policy being enacted and his Calgary School, anti-government worldview.

So Dion and Harper are just vying to see who can be the most friendly to corporate Canada. This will make for a rather uninspired election season.

6 comments

  • Therefore, why vote liberal? The only difference is that the Cons smile with glee when they kick you in the face, and the Libs say, oh, we are so sorry – out after it is all said and done – it’s the same outcome.

  • Let us state the obvious, before we are blinded by our own ideology: Dion’s actual views are far to the left of what his current policy announcements suggest. At least that is what his past writings and his association, during the Liberal leadership race, with progressive economist Douglas Peters point to. For recent information on Peters’ views, see this early PEF posting:
    http://progecon.wordpress.com/2006/12/03/bank-of-canada-inflation-targeting/#comments

    The fundamental problem Dion faces, like Trudeau and (more cynically) Chrétien before him, is that the business liberals in his party, who assumed way too much authority during Paul Martin’s anti-democratic take-over of riding associations, will revolt if he swings too far left. (Never mind that the Liberal Party only ever wins when it moves to the left, the Martinites and right-wing populists like Denis Coderre would like nothing better than another Harper minority, if that would mean that Ignatief or another right-wing incompetent could challenge for the leadership.)

    Now, while Dion has been trying to keep his still fractured party together in the face of the Martinite-type backroom shenanigans, Jack Layton and company have been cosying up to Quebec nationalists (because they are such a progressive bunch, right — that’s irony by the way). This should scare Canadian progressives a lot more than Dion’s announcements, because the NDP’s concessions to separatists can only undermine the Government of Canada’s capacity to act in the national interest. (Please note — this is an argument about federal powers, not about the relative merits of Canadian and Quebec nationalism, which are both moronic and hateful.) Every act of decentralization in the last thirty years, every devolution of federal power to the provinces, has fuelled the race to the bottom in public services that we have endured for twenty years in this country. Layton and co, in addition to putting fuel on the decentralist fire, have also opted for doctrinaire right-wing fiscal policies, including a hard-line opposition to deficit finance (which we owe to Paul Sommerville), so the NDP’s fiscal policies are now essentially indistinguishable from Paul Martin’s!

    Therefore, instead of lamenting the right-wing tone of Dion’s economic policy announcements, the left wing should be giving him its undivided support, as he forges ahead with promises to support manufacturing and green car production, because he really is the only hope — perhaps the last, even — for moving the Canadian political spectrum to the left. No party led by smilin’ Jack will ever govern, and I say this as a lifelong NDPer (until Dion became leader of the opposition, that is).

    Everyone should read Lawrence Martin’ posting today in the Globe and Mail.

  • Matt,

    Thanks for taking the time to set out an alternative view. I completely agree that Doug Peters is a good fellow. However, I must disagree with your main argument.

    This is not a matter of business Liberals preventing Dion from swinging “too far left”. This is a matter of Dion swinging well right of the Conservatives on many economic issues. I do not know whether Dion is putting forward these Bay Street positions because he genuinely believes them or because he feels compelled to adopt them. Whatever his motivation, the end result is plainly not worthy of the left’s “undivided support”.

    As for Lawrence Martin, his argument proceeds from two questionable premises. First, he assumes that the Liberals are clearly left of the Conservatives. As Marc and I note, Dion’s economic pronouncements raise serious doubts. Second, Martin seems to assume that the Liberals constituted “the left” in Quebec. In fact, the separatist parties have tended to be the social democrats.

    The federal NDP has espoused a “deux nations” view of Canada for decades. Whatever one thinks of this position, it is not some new manouevre by Layton to court Quebec nationalists.

  • ERin:

    Your claim that the federal NDP has espoused a “deux nations” view of Canada for decades, needs a lot of qualification. The NDP has in fact wavered back and forth on this issue, depending on whether it could, say, get nationalist votes in Val Dor. It is Layton’s dishonour to have have formalized the NDP’s racist position on Quebec nationhood (which is untenable when 40 percent of the population do not consider themselves to be part of a Quebec nation, and when two thirds of the province is inhabited by nations that predate European arrival by thousands of years). Dion is certainly more progressive than the NDP on this issue.

  • Rightly critiquing the Liberals’ own views on corporate tax cuts and many other policies should not blind us to the fact that there’s no contest at all as to who is really corporate Canada’s sweetheart:

    Corporate Canada abandoned the Liberals big time during Martin’s minority regime, when he was boosting social spending and (more importantly) as the Tories were re-uniting around an aggressive neoliberal platform. It is evident from the pattern of corporate donations, the statements of corporate lobbyists, and other evidence that corporate Canada is utterly unified in its wish that the Tories work to assemble a viable neoliberal majority. And they have good reason to be hopeful: that frightening event (a Harper majority) would undoubtedly constitute a watershed in Canada’s political, economic, and social history.

    The old “Tweedledum and Tweedledee” line that there’s no difference between the Tories and the Liberals is convenient for the NDP’s own opportunistic electoralism, but it’s never been more false than it is today. This shouldn’t stop us from critiquing Liberal policies that are wrong (like support for corporate tax cuts). But I could write a book on the failings of the NDP’s own economic policies. Most important, we need to be realistic about what we are facing: an effort, led by corporate Canada, to put a hard-right Tory lock on federal politics.

  • Matt, fair point. The national question has often been a subject of robust debate within the NDP.

    Jim, I certainly agree that a Harper majority would be bad news. However, I quibble with the thesis that corporate Canada has definitively thrown its lot in with the Harper Conservatives. My sense is that capital has no permanent allies, only permanent interests.

    Bill C-24, which limited corporate donations to $1,000, came into force in January 2004, before Harper was elected leader of the new Conservative Party and before the Martin minority existed. Once in office, Harper banned corporate donations altogether. Therefore, I am not sure what “pattern of corporate donations” reflects unified business support for Harper. (Admittedly, I am having trouble finding data on post-2004 corporate donations on Elections Canada’s website.)

    Harper became leader of the Canadian Alliance back in 2002. If anything, the pattern of corporate donations shifted more heavily in favour of the Liberals:
    2003 – $10.8 million to the Liberals; $1.3 million to the Alliance
    2002 – $5.1 million to the Liberals; $1.1 million to the Alliance
    2001 – $6.4 million to the Liberals; $0.9 million to the Alliance
    2000 – $11.9 million to the Liberals; $6.8 million to the Alliance

    (Of course, 2000 was an election year, after which the Liberals had a majority government.)

    In terms of commentary, corporate Canada has strongly supported Harper’s government on some issues and sharply criticized it on others like income trusts, interest deductibility, and the alleged lack of corporate-tax cuts.

    Finally, even if business abandoned the Martin minority, it does not necessarily follow that business has permanently abandoned the Liberals in favour of the Conservatives. As Marc notes, Dion seems to be cozying up to corporate Canada quite effectively.

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