OTTAWA: Turns out cutting corporate taxes is good for the economy and increases tax revenues, according to an analysis by Canadian Manufacturers & Exporters (CME).
The 36-page report released Jan. 12 says corporate tax cuts create jobs, boost investment and they make Canada more globally competitive.
The federal corporate tax rate dropped from 18% to 16.5% on Jan. 1, and a further reduction to 15% is planned for Jan. 1, 2012. Provincial governments are also reducing their tax rates on general corporate income over the next two years, which will combine to give Canada a 25% statutory corporate tax rate on business income by 2012.
But CME says that will only bring the rate in line with OECD countries (25.85% in 2010).
“Canada’s combined corporate tax rate needs to fall below 25% simply to allow Canada to catch up with the rest of the world,” says the report.
The Economic Impact of Corporate Tax Reductions report measures the effects that tax cuts at both federal and provincial levels will have on the Canadian economy over the next two years. Based on profits for all business sectors growing by 10% this year and next, the report says after-tax profits will increase by $12.4 billion or 10.6%; a 4.4% increase in investment with the $62 billion almost evenly split between facilities and machinery and equipment; and there will be $546 million more for research and development.
The economy will see nominal GDP grow 3.2% to $51.6 billion and there will be a 0.52% drop in unemployment with a net gain of 98,800 jobs.
Your typical per capita Canadian will benefit too, pocketing an extra $880 or so. Overall, personal incomes will increase by $30.4 billion or 2.4%, while governments can expect an extra $2.6 billion to $3.7 billion in net revenues.
The CME is encouraging the federal government to also extend the accelerated capital cost allowance currently available for investments in manufacturing and processing equipment for another five years.
“The two-year write-off boosts investment in productivity enhancing technologies. That is more important than ever for a sector whose profits remain under pressure as a result of a strong Canadian dollar,” says CME president and CEO Jayson Myers.