Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Bob Silver, president of Western Glove Works makers of Silver and 1921 jeans, photographed in his Winnipeg company's now closed sewing room Friday, June 30, 2006 (John Woods/The Canadian Press/John Woods/The Canadian Press)
Bob Silver, president of Western Glove Works makers of Silver and 1921 jeans, photographed in his Winnipeg company's now closed sewing room Friday, June 30, 2006 (John Woods/The Canadian Press/John Woods/The Canadian Press)

Time to lead

Cut taxes, create jobs? Not quite Add to ...

The Silver denim jeans sold at Bootlegger and Pantorama stores across Canada are no longer made at a factory in Winnipeg. Western Glove Works shifted production four years ago to Asia, where labour costs are much lower than in Canada.

The move highlights the fact that corporate tax cuts in this country have done little to offset the global forces that have battered the once-thriving garment trade. Western Glove alone has shed 1,100 jobs over the past decade, leaving it with just 100 employees today.

More related to this story

But there is a silver lining for the 90-year-old private company. Lower taxes have helped Winnipeg Glove make a profit on annual revenue of $100-million, said president Bob Silver. As a result, he said, the company is planning to hire more staff in Winnipeg.

"We love operating out of Canada … but we want this country to be as competitive as any country in the world," he said.

Corporate taxes have become a major issue in the federal election campaign. The Conservatives argue that tax cuts are crucial to make Canada more competitive globally. The Liberals want to roll rates back to 2010 levels to free up money for social programs.

Successive federal governments began cutting taxes in 2000. The Conservatives' goal is to cut the combined federal-provincial rate to 25 per cent from 28 per cent by fiscal 2013.

At the heart of the debate is just how effective corporate tax cuts are as a job-creation tool. For companies such as Western Glove, the short answer appears to be not at all. For those companies seeking to make their domestic operations more efficient as they face global rivals, the evidence is less than clear.

Even the most ardent fans of the economic stimulus measure - corporate executives themselves - acknowledge that they are hard pressed to find a direct link between tax cuts and job creation.

The Globe and Mail interviewed executives in the machinery, aviation, food, beer and retailing sectors. All said low taxes foster confidence in the economy. But they said many other factors go into making investment decisions, including the cost of raw materials and the value of the Canadian dollar. Many executives singled out specific programs, such as research and development incentives for small companies and funding for retraining programs, as more effective in creating jobs.

Michael Vels, chief financial officer at Maple Leaf Foods, said lower tax rates was one component in the food company's decision to build a $125-million state-of-the-art bakery in Hamilton that will create about 300 jobs. He said the company spent years working on the project, which nearly did not go ahead.

While the company debated the merits of the bakery, he said, two things happened. Corporate tax rates came down roughly two percentage points and the Canadian dollar strengthened, making it easier to buy high-tech equipment outside the country. Maple Leaf also qualified for job training programs that helped cut costs.

"Does our company only make a decision on an investment like that because of the tax rate? Absolutely not," Mr. Vels said. "But when it comes to evaluating the return on a 'go' or 'no go' decision and on whether the investment will return the appropriate return to the shareholders, the tax rate is a material factor in that."

Edson Packaging Machinery Ltd. invests 4 to 5 cents of every $1 of its revenue in new technology with the help of a research-and-development program. The federal and Ontario governments pay the Hamilton, Ont.-based manufacturer 45 cents for every $1 it spends on research and development, said president Gary Evans. This, in turn, is allowing Edson to design new machinery that helps its customers in the packaged consumer goods sector cut their production times.

As a result, Mr. Evans said, orders are up and Edson, which has 107 employees, plans to hire more.

"We're allowed to grow through that investment," he said.

Even figures compiled by the federal Finance Department indicate that corporate tax cuts are not an effective way to create jobs. As part of the 2010 budget, Finance prepared a study comparing tax cuts with other stimulus measures, including infrastructure investments and Employment Insurance premiums.

Corporate tax cuts ranked at the bottom of the list, producing just 20 cents of domestic economic growth for every $1 in cuts for 2010. Infrastructure investments, by comparison, generated $1.50 in economic activity for every $1 invested.

However, the department notes that corporate income tax measures are most effective in the long run, because they increase the incentive to invest, leading to a higher capacity to produce goods and services.

David Schellenberg, chief executive officer of Conair Group Ltd., an Abbotsford, B.C.-based aviation company, suggested that the real benefits of tax cuts are more subtle and therefore difficult to measure. They provide the corporate sector with an indication of how the government is managing its finances, he said. For its part, Conair has hired more than 300 workers since the onset of tax cuts a decade ago, bringing its total work force to 800.

"If there is an ability, because they are managing finances well, to continue to cut corporate tax rates, it just gives us confidence to create jobs and put investment into our plant and equipment," he said. "That has absolutely been a factor in our decision making."

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular