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TORONTO — Federal Finance Minster Jim Flaherty stuck his nose into Ontario politics once again Monday, challenging the McGuinty government to cut corporate taxes in Tuesday's provincial budget.
“While provinces such as British Columbia are taking steps to lower business taxes, Ontario is falling further and further behind,” Mr. Flaherty said at a press conference he called in Toronto.
“Our government has provided relief in every way we collect taxes ... Dalton McGuinty has a golden opportunity to begin turning the situation around.”
Mr. Flaherty's provincial counterpart, Dwight Duncan, dismissed Mr. Flaherty's press conference as a “stunt.”
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“I'd ask him to have a chance to talk about our differences, and they're real, but we're proceeding based on what we believe to be the right response,” Mr. Duncan said. “We think our balanced, pragmatic approach is the right one.”
A reporter asked Mr. Flaherty to explain the purpose of his unusual intervention in Ontario's affairs on the eve of a budget, considering former finance minister Paul Martin had never intervened in a similar way when Mr. Flaherty held the same provincial portfolio.
“The need to reduce business tax in Ontario,” the Finance Minister replied. “Ontario has the highest business taxes in the country.”
Mr. Flaherty said he “expects” Mr. McGuinty to do three things in Tuesday's budget: reduce the provincial business income tax rate with a goal of meeting a combined 25 per cent business tax rate in Canada by 2012; promise to fully eliminate capital taxes for all businesses in all sectors, and take steps to harmonize Ontario's retail sales tax with the GST.
A spokesman for Mr. McGuinty's office said Monday that it wouldn't matter what Mr. Flaherty had to say because the budget's contents were “locked in,” something they assumed Mr. Flaherty was fully aware of before he scheduled the news conference.
The comments are the latest volley in a nasty battle with Mr. McGuinty that has exposed sharp differences between the two governments over how best to address Ontario's battered manufacturing sector.
Kathy Brock, a professor at the School of Policy Studies at Queen's University, said it's a matter of “duelling economic ideologies,” each legitimate in its own right. But the highly partisan, political nature of the debate will do nothing to solve Ontario's economic woes, which she said are a “serious worry” facing the country.
“There's a real serious danger when a battle becomes this nasty and this public, then it's very hard to find a basis for moving forward in a collaborative way,” Dr. Brock said.
“With this approach by Flaherty becoming so aggressive, with it becoming very, very partisan on his side, it doesn't appear to be creating a basis for collaborative federalism and it doesn't appear to be respecting provincial autonomy in the way that they have with Alberta or Quebec.”
Dr. Brock said some Ontario Liberals are also to blame for making their attacks on Mr. Flaherty personal, including snide remarks about his stature.
NDP Leader Howard Hampton said Monday that both levels of government are using the blame game to avoid taking real action to stem the loss of almost 200,000 good-paying manufacturing jobs in the province in the past four years.
“The problem is this: Mr. Flaherty and Mr. Harper are worried, Mr. McGuinty says he's worried, [but] none of them are doing anything to address the issues,” said Mr. Hampton.
“Harper blames McGuinty while McGuinty blames Harper, and neither of them have done anything to help sustain manufacturing jobs, to address issues like long-term care and the tough spot that municipalities are in. Neither of them do anything to address issues like poverty.”
Mr. Flaherty told a Sun Media editorial board last week that Canada's most populous province is on track to become a 'have-not' province in two or three years if its weakening economy is not turned around, and he placed the blame solely on the Premier.
“If this continues – this is not hyperbole, this is a fact – Ontario will become a have-not province in Confederation,” Mr. Flaherty said.
“And it will be Premier McGuinty's legacy that he in two terms took Ontario from being the strongest economic province in the federation to a have-not province.”
Mr. Flaherty told the Sun Media editorial board that the federal government would have to “rethink” the equalization formula because it was never envisioned that Ontario would one day become a recipient of payments.
Mr. McGuinty and Mr. Duncan have angrily countered that direct investments to help manufacturers with loans and grants is a better course of action, not tax cuts.
However, private-sector economists tend to back Mr. Flaherty's pessimistic prognosis, noting Ontario's problems are tied directly to those in the U.S.
Toronto-Dominion Bank has slashed its gross domestic product growth forecast for Ontario to just 0.5 per cent this year, the lowest for any province and its worst showing since the recession of the early 1990s. The national rate is 1.1 per cent.
Ontario's general corporate income tax rate of 14 per cent is higher than that of every province, with the exceptions of Nova Scotia and Prince Edward Island.
Mr. McGuinty recently sent an angry letter to Prime Minister Stephen Harper accusing the federal government of “undermining” Ontario, but he has yet to hear back from Ottawa.
While praising British Columbia and Alberta for moving to lower corporate taxes, Mr. Flaherty had strong critical words for his home province, saying Mr. McGuinty doesn't get the fact that the province must reduce taxes.
“It discourages investment in the province of Ontario,” he said. “If you're going to make a new business investment in Canada, and you're concerned about taxes, the last place you will go is the province of Ontario.”
With reports from Karen Howlett and Canadian Press
