Wilson Explains Hype Surrounding Business Taxes(March 30, 2008 -- Queen's Park Report) -- Of interest to many people in the riding of Simcoe-Grey and all over Ontario is the ongoing feud between our Premier Dalton McGuinty and Federal Finance Minister Jim Flaherty. Flaherty has urged the Ontario government to cut business taxes to save Ontario's economy from further decline. He rightly asserts that cuts would stimulate investment, growth and create new jobs.
From many discussions with constituents in Simcoe-Grey it has become clear there are a great deal of misconceptions about how cutting business taxes is good for the economy and creates jobs. That is why I want to dedicate this week's Queen's Park Report to why the issue of business taxes is incredibly important to the health of our provincial economy.
Businesses are assessed four types of taxes, income tax, capital tax, a local business tax, and a business education tax. The current basic corporate income tax rate is 14% on taxable income allocated to Ontario. All other provinces are moving or have moved to a rate of 10%.
A capital tax is assessed based on the amount of shareholder equity that exists in a business. Like a homeowner builds equity in their home as they pay off a mortgage, entrepreneurs build equity in their businesses by paying off liabilities, such as loans they utilized to finance expansion and growth. Imagine making mortgage payments on your home and at the end of the month receiving a bill from the provincial government requiring you to pay tax on the amount you reduced your mortgage by. This is the situation that businesses in Ontario face.
While income taxes are dependant on whether or not a business has made any money over the course of a fiscal year, capital taxes are charged regardless if a company records a profit or a loss. As such, even in bad economic times, businesses are hit with a sizeable tax on the value of their operating capital.
Additionally, capital taxes discourage investment. If you were an entrepreneur and you pay more tax on investments you made in your business, why would a business expand at all, especially in difficult economic times, such as the present? Businesses that are charged capital taxes will put off investment and cut costs, primarily in the form of jobs including over 1,100 workers in our riding.
With the double whammy of a capital tax and a 14% corporate income tax, Ontario has become one of the least competitive jurisdictions for investment in all of North America. In fact, we have the highest business taxes in North America. While some may find the idea of saving businesses' money a difficult proposition to swallow, especially when they're losing their job, lower taxes encourage investment by encouraging plant expansions, new lines, and new products that in the end mean more jobs for the people of Ontario.
McGuinty maintains that cutting taxes is not enough to stimulate growth. If that was the case, then why has every other province in Canada cut business taxes to levels significantly lower then Ontario's? McGuinty's most recent budget emphasized job training programs for 20,000 out of work Ontarians. Yet, this interventionist approach towards addressing Ontario's economic decline does not help the other 174,000 manufacturing workers who have lost their good paying jobs.
Since when did big brother government decide it would do the job of worker re-training? Whatever happened to training on the job?
Instead of spending more on misdirected job training programs, McGuinty should have taken that $1.5 billion and cut personal and corporate taxes so that everyone has the possibility of employment. Cutting incomes taxes is why the last Progressive Conservative government created 1.3 million net new jobs over its two terms in office. McGuinty should have taken the lead of the previous Conservative government, his fellow Premiers, and lowered Ontario's business taxes. Only then can we stop Ontario's slide into a have not status province.