Submission to the House of Commons Finance Committee 2007 Pre-Budget Consultations : Winning the Race to the Bottom

Posted: Wednesday, 19 September 2007

Recommendations

The Government of Canada should not implement the corporate income tax (CIT) cuts proposed for 2008-2011. Instead, it should consider slightly increasing the federal CIT rate and introducing stronger targeted measures to promote new investment in the Canadian economy. Corporate surtaxes should be applied to highly profitable sectors that are insulated from international competition, such as nonrenewable-resource extraction and financial services.
Introduction

On behalf of the three million members of the Canadian Labour Congress (CLC), we want to thank you for affording us the opportunity to present our views. The CLC brings together Canada’s national and international unions along with the provincial and territorial federations of labour and 137 district labour councils whose members work in virtually all sectors of the Canadian economy, in all occupations, in all parts of Canada.

Have Recent Corporate Tax Cuts Been Worth the Cost?

Since 2000, the federal government has greatly reduced its CIT rates with the stated purpose of making Canada more competitive in attracting internationally mobile capital. While these cuts have been very expensive in terms of forgone revenue, they do not appear to have increased corporate investment in Canada.

Budget 2000 reduced the general CIT rate from 28% to 21% by 2004. Ironically, this huge tax cut provided no savings for manufacturing, the economic sector most exposed to international competition. While manufacturers already had a 21% rate, small businesses pay only 12% and were also unaffected by the general-rate reduction.

Budgets 2005, 2006 and 2007 propose to reduce the general CIT rate to 18.5% by 2011, lower the small-business rate to 11% by 2009 and eliminate the corporate surtax by 2008, which effectively drops both rates by a further 1.1%. Although these rate cuts are less dramatic than those of Budget 2000, they will cost almost as much because they apply to all corporations.