With Ontario’s economy still reeling from this seemingly never-ending economic downturn that began in 2008, you would think this Provincial government would do anything in its power to ensure that Ontario’s business sector had the best competitive advantages possible.
The fact is we do, or at least we did until the Provincial government starting floating the notion that they were going to retreat or delay on their promised corporate income tax (CIT) rate reduction – down to 10 percent by 2013.
Federal Finance Minister Flaherty’s long-term goal of marketing Canada as a 25-per-cent corporate tax zone now appears to be threatened if not completely slipping away just at the most critical time, perhaps in Ontario’s history.
Why? Flaherty’s plan required two critical elements to succeed. One was to have the federal government’s five-year plan to reduce corporate taxes to 15 per cent (it was 22.1% in 2007) implemented in early 2012. That part was accomplished on January 1st 2012.
The second part of the plan required that the province of Ontario also reduce its corporate income tax rate (CIT) to 10-per-cent by 2013 (11% in July 2012 then to 10% in 2013) and for all intents and purposes it appeared Premier McGuinty and Finance Minister Duncan were totally on side.
All was going well until – Oops! – the Liberals in Ontario did not get their coveted majority in the Fall 2011 elections and now the provincial NDPs are pushing McGuinty and Duncan to if not totally cancelling them to at least put the corporate tax cuts on hold. This political reality coupled with large annual deficits and spiraling debt numbers have put Ontario’s credit rating at risk.
In our letter to the Hon. Dwight Duncan, the London Chamber asks the Minister of Finance to commit to implementing its comprehensive tax package in full.
A reduction in Ontario’s CIT rate is an essential part of the province’s tax reform package, designed to create jobs and foster economic growth in the province. According to a report by tax expert Jack Mintz of the University of Calgary, Ontario’s comprehensive tax reform package will create 591,000 jobs and increase capital investment by $47 billion.
Interestingly, Mintz’s own Province of Alberta and neighboring B.C. (two of Ontario’s fiercest competitors) already have their CIT rates set at 10%.
And let’s not forget that Ontario’s business community put its support behind the HST with the caveat that the Province would follow through with it Corporate Tax Plan strategy which included these scheduled cuts.
The planned CIT rate reduction is important to securing much needed Foreign Direct Investment (FDI) into Ontario. According to a joint study by Harvard University and the World Bank, on average, a tax rate decrease of one percentage point results in a 3.3 percent increase in FDI inflows.
At the local level, even the threat of taking these proposed tax cuts out of play will doubtless have a damaging effect on the LEDC’s ability to close the deal on a number of foreign direct investment opportunities.
And in talking with several of our larger accounting firms here in London, we are told that a number of their clients have already budgeted for these proposed tax cuts in their three to five year planning strategies. Removing those tax advantages can and will have dire consequences for those clients and the resultant impact on our economy.
The London Chamber is urging the provincial government to fully implement its comprehensive tax package and to work cooperatively with its partners in the private sector to find ways to create jobs and grow Ontario’s economy. Breaking promises to Ontario’s business community is not going to get the job done.