Premier Ford should look west for tax advice
On the campaign trail, Doug Ford repeatedly stressed the need to make Ontario “open for business.” But the need for pro-growth economic policy, which makes it easier for businesses to thrive, hire workers and raise wages, remains just as urgent today.
So what can the Ford government do to keep its promises to help spur growth, encourage investment and create jobs? Well, it could look west, specifically to Premier Jason Kenney’s government in Alberta, which has enacted substantial pro-growth corporate income tax (CIT) reductions. This type of tax reform will help encourage economic recovery in Alberta and would do the same in Ontario if the Ford government is willing to follow Alberta’s lead.
First, a bit of context. In 2019, Alberta and Ontario had nearly identical provincial corporate income tax rates (Alberta at 12 per cent, Ontario at 11.5 per cent). However, Premier Kenney committed to gradually reduce his province’s CIT rate over four years, to 8 per cent.
Recently, Premier Kenney’s government announced it would accelerate the planned CIT reductions, to 8 per cent immediately as part of its broader recovery plan to help encourage recovery and growth during this COVID recession.
Again, there’s strong evidence the CIT reductions in Alberta will encourage investment, economic growth and job creation. The Ford government can produce these same benefits by following suit in Ontario.
The CIT is one of the most economically harmful types of taxes. Each dollar of revenue raised through the CIT does more economic damage than a dollar raised via most other sources of taxation. As such, high CIT rates create headwinds that interferes with economic recovery, while CIT reductions help encourage economic growth and job creation.
Some critics claim that CIT reductions are simply a “handout to the wealthy.” In reality, however, they produce benefits for Ontarians across the income distribution.
Consider this. Over time, businesses must to respond to high CIT rates by slowing the rate of growth in wages for their employees. A recent study by professors Kenneth McKenzie of the University of Calgary and Ergete Ferede of MacEwan University estimated the effects the CIT on wages. Their study shows that for every dollar of revenue raised by the CIT, the aggregate wages of all workers in Ontario falls by $1.97.
This means high CIT rates reduce wages while lower CIT rates help increase them. Put another way, higher CIT doesn’t just impose costs on those who own corporations, but also those who work for them. As such, a CIT reduction, similar to the one recently announced in Alberta, would bring benefits to Ontarians broadly, not just “the rich.”
Of course, CIT rates are just one factor that helps determine how well any economy performs, and it would be a mistake to think a CIT reduction would solve all the economic challenges facing Ontario. But if the Ford government follows Alberta’s lead on CIT reduction, it will encourage investment, job creation, wage growth and ultimately a stronger economy for Ontarians.