June 20, 2010

Canada: Tax Haven for Big Capital

(The following article is from the June 1-15, 2010 issue of People's Voice, Canada's leading communist newspaper. Articles can be reprinted free if the source is credited. Subscription rates in Canada: $30/year, or $15 low income rate; for U.S. readers - $45 US per year; other overseas readers - $45 US or $50 CDN per year. Send to: People's Voice, c/o PV Business Manager, 706 Clark Drive, Vancouver, BC, V5L 3J1.)

PV Vancouver Bureau

For years, right-wing think tanks, politicians and corporate media hacks have complained that business taxes are "too high" in Canada, supposedly driving away investors and jobs. But a recent study from the business sector prove the opposite: Canada is the second lowest taxation country in the developed capitalist world.

If corporate income tax rates were restored to the 2001 level (28%), an estimated $30 billion more would flow into the federal treasury this year. That could provide desperately needed funds to expand social programs, extend and improve employment insurance, build low-income housing, protect the environment, and tackle other critical issues.

Instead, massive tax breaks for the corporations and the rich are adding to the burden on working families. Federal taxes on corporate profits are now at just 17%, heading to 15% by 2010 under the Harper Tories.

Canada ranks second to Mexico and far ahead of the U.S. on a list of "tax-friendly countries for business", according to a report released on May 12 by accounting firm KPMG. Netherlands is ranked third, followed by Australia, United Kingdom, USA, Germany, Italy, Japan, and France.

In general, businesses in Mexico pay 40.1 per cent less tax than those in the U.S. Taxes in Canada are 36.1 per cent lower, or more than one-third. At the other end of the spectrum, corporate taxes are 81.4 per cent higher in France than the U.S.

Canada's low corporate taxes are "a huge competitive advantage when companies decide where to set up shop," according to Greg Wiebe of KPMG's Toronto office.

"Business has the ability to set up manufacturing, distribution plants, and offices anywhere in the world depending on where it makes sense. Having a competitive corporate tax rate hopefully allows you to attract more business and investment into the country which creates jobs," Wiebe claimed. "We're a small country and have a relatively small economy. We need to take advantage of anything we can to attract business into this country."

Wiebe and KPMG did not address the negative impact of declining tax revenues on social spending in Canada.

The KPMG report tallies up the cost of income tax, capital, sales, and property taxes, as well as miscellaneous local taxes and statutory labour costs, in 95 cities across 10 countries. The U.S., the largest economy in the world, is used as a baseline.

While personal income taxes and sales taxes are still higher in Canada, payroll taxes have been reduced, capital taxes have been phased out, and corporate tax rates have been falling in recent years. Canada's overall federal and provincial corporate tax rates are approaching 25 per cent. The U.S. federal tax rate for business starts at 35 per cent, and state tax rates vary.

And the breaks for the business sector will keep coming with the so-called "harmonised sales tax" to be implemented on July 1 in Ontario and British Columbia. The HST "is likely to enhance Canada's standing in the coming years," Wiebe said. "The HST is quite a business friendly way of applying a sales tax."

In fact, the HST is not actually a tax in the traditional sense. Consumers will pay the HST directly to businesses; none of the HST will go towards government revenues, despite considerable and deliberate misinformation spread by the corporate media and right-wing politicians. One "theory" advanced by these forces is that taxpayers will ultimately benefit from larger taxes paid by the companies which benefit from the HST, but since corporate tax rates are being slashed dramatically, even this "trickle-down" effect is doubtful. What is certain is that the HST will immediately transfer huge amounts - $1.9 billion annually in the case of British Columbia - from consumers to businesses. Working people who can least afford this shift will be hit the hardest.

Canadian municipalities are also leaders in cutting corporate taxes at the local level, according to the KPMG study.

Vancouver is rated the lowest-tax city on the list; its U.S. neighbour Seattle is ranked number 18. Nor is that likely to change under the Vision majority on Vancouver city council, which claims to be "pro-people." A huge shift of Vancouver municipal taxes is underway, away from businesses and onto homeowners.

Montreal and Toronto are in the top five for lowest corporate taxation, far ahead of eastern U.S. cities such as Boston (13), Philadelphia (14) and New York (27).

Low provincial taxes in British Columbia helped boost Vancouver to the top of the list, according to KPMG, which deems the city highly attractive "tax-wise" for manufacturing and corporate and information technology companies.

For research and development, Montreal ranked as the top Canadian city, taking the No. 2 spot behind Melbourne, Australia. Sydney (Australia), Vancouver, and Manchester (U.K.) filled out the top five.

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