Although a demand for lower auto insurance rates has received more attention, the Ontario New Democrats’ call for measures to collect more business tax has also been causing Kathleen Wynne’s Liberals behind-the-scenes consternation as they prepare this spring’s budget.
As reported on Thursday, Ms. Wynne is not prepared to go as far as even some in her own party would like, by raising the corporate tax rate. But she is also aware that for her minority government to stay alive, she will need to make some milder NDP-friendly moves.
Last month, Finance Minister Charles Sousa answered the least controversial of the NDP’s requests by sending a letter to his federal counterpart, Jim Flaherty, calling for joint efforts to crack down on companies that dodge taxes by shifting funds outside the province. To look at the other options on the table is to see that it gets a little more complicated after that.
COLLECT MORE HEALTH TAX
All businesses in Ontario are currently exempted from paying the Employer Health Tax (which in most cases collects about 1 cent for every dollar in salary) on their first $400,000 of payroll. The NDP has proposed that the exemption be offered only to smaller businesses, with payrolls under $5-million total. In other words, bigger companies would pay a few thousand dollars extra each year.
That change appears to be actively under consideration. The government has to decide whether annoying bigger businesses would be worth it for the relatively small increase in revenues, which the NDP (which tends to overestimate such things) puts at $90-million annually.
Somewhat confusingly, February’s Throne Speech suggested Ms. Wynne wants to make the exemption bigger for small businesses, in which case cutting off larger ones might actually be a wash.
CANCEL PLANNED TAX CREDITS
The final NDP corporate-tax request, alongside improving compliance and changing the health tax, is the most contentious one: scrapping the gradual phase-in of input tax credits (which return the sales tax paid on business-related expenses) for large companies. To do so, the New Democrats claim, would save nearly $1-billion annually by 2017-18, the year the budget is supposed to be balanced. Since the corporate world is already living without them, they argue, it could surely continue to do so.
Already available to smaller companies, these credits were part of the introduction of a harmonized sales tax. So to cancel them would undermine the government’s pitch that the HST makes Ontario a better place to do business.
Even if the Liberals were willing to overlook that, it’s far from certain that they could get the federal Conservatives – whose co-operation would be required – to go along with scrapping or delaying them.
CANCEL EXISTING TAX CREDITS
In last year’s government-commissioned report on public spending, Don Drummond made a compelling case that most business tax credits have outlived their usefulness. Originally introduced to compensate for a high tax rate, the economist argued, they’re no longer needed now that the rate is much more competitive.
Mr. Drummond’s suggestion that the government could save as much as $2.3-billion, though, would look a lot more appealing to political parties if more than half that sum didn’t go toward a small business tax credit. And eliminating smaller, more narrowly targeted expenditures such as the Ontario Film and Television Tax Credit would kick up a major hue and cry from the affected industries.
Likelier than cancellation of these credits is that the government will try to narrow eligibility for them. Some could also be restructured as grants, which would make it easier to cap how much they cost.
END THE ENTERTAINMENT WRITEOFFS
Before last year’s provincial budget, then-finance minister Dwight Duncan broached the idea of ending tax writeoffs for companies that buy private boxes for sporting events. Mr. Duncan was promptly shot down by Mr. Flaherty amid an outcry from the NHL’s Ottawa Senators, who claimed such a move would threaten their survival. But the Liberals could raise it again.
In a similar vein, of all the input tax credits scheduled to be introduced, it’s the ones for entertainment costs (including sports tickets) that the NDP has been highlighting the most. So the Liberals could just try to cancel those, and carry on with the rest.
Any impact on the deficit figure would barely qualify as a rounding error. Still, a government seeking to show that everyone is being made to pay their fare share could find advantage in ending the subsidization of luxury purchases.Report Typo/Error