Ontario Liberals should keep promise on corporate tax relief

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Appeared in the Ottawa Sun, October 18, 2017
Ontario Liberals should keep promise on corporate tax relief

In the early years of this decade, former Premier Dalton McGuinty's government lowered Ontario's corporate income tax (CIT) rate from 14 per cent to 11.5 per cent. For several reasons, reducing Ontario's CIT rate was one of the Liberals' most important economic achievements during their time in office.

For starters, the CIT is one of the most economically harmful components of our tax mix. Raising revenue through this tax produces more economic damage per dollar raised than virtually all other sources. What's more, the evidence shows that corporate taxes are largely borne by workers and consumers. So claims that business tax reductions are “handouts to the rich” are simply wrong.

However, while the reductions benefited Ontario's economy, the Liberal corporate tax reduction plan was ultimately left incomplete. Originally that plan called for further reductions in the CIT over time, concluding when the rate reached 10 per cent in 2013. These final reductions never occurred and the rate stayed at 11.5 per cent.

The government justified its decision not to proceed with the last rounds of CIT reductions by pointing to the province's budget deficit. In short, despite the economic benefits, the Liberal government of the day argued that the province could not afford further tax relief at the time.

It's important to remember, however, that the McGuinty government did not say it was going to cancel the planned tax reductions altogether—but rather that it would delay those reductions until the budget was balanced around 2017. Once the deficit was eliminated, the government said it would move Ontario to a 10 per cent CIT rate, to help grow the economy and attract investment.

Well, 2017 is here and the operating budget is expected to be balanced—although the auditor general and others have raised important concerns about the government's accounting and the sustainability of the fiscal balance. Yet setting these disputes aside, the operating deficit today is much smaller than it was in 2012 and it’s a good time to revisit the Liberal government's five-year-old promise to complete its business tax reduction program.

In fact, the need for further business tax relief today is particularly acute. Despite a recent uptick in overall economic growth, Ontario still struggles to attract business investment, which had not recovered to pre-recession levels as of the end of last year. This is worrying news, given that business investment is an important driver of long-term growth. Reducing Ontario’s CIT rate to 10 per cent would help businesses already in the province survive and grow, while also helping attract new investment to help address this serious problem.

Furthermore, the United States is currently considering major corporate tax reform that could dramatically reduce business taxes south of the border, putting more competitive pressure on Ontario. The case for CIT relief here is strong no matter what happens south of the border, but the prospect of major tax reform in the U.S. is just one more reason to provide tax relief now for businesses in the province.

Five years ago the government said that corporate income tax relief would resume around 2017 to help the economy grow and attract investment. Well, here we are. On corporate taxes, Premier Wynne can now finish what Premier McGuinty started.