The public debate over business taxes should now focus on the provinces after years of corporate tax cuts at the federal level, says the co-author of a new ranking of international business taxes.
Canada now has the lowest business taxes in the G7 and is 57th out of 90 countries surveyed by the third annual global tax competitiveness ranking published by the University of Calgary's School of Public Policy.
The report is co-authored by Jack Mintz, who sits on Finance Canada's economic advisory council and who was a leading voice urging Ottawa to cut corporate tax rates. The cuts – which took place through the recession as the federal rate dropped to 15 per cent this year from 19 per cent in 2009 – were the subject of heated political debate. Both the opposition NDP and Liberal parties opposed the cuts during the 2011 election campaign.
In an interview, Dr. Mintz said the federal government should now move on to reviewing other parts of its tax system.
"I think we've gotten the business tax structure finally to a point where there's been significant improvement," he said. "That doesn't mean there isn't a need for certain changes."
Dr. Mintz said provincial taxes on business should be more closely aligned across the country.
Still, while Dr. Mintz sees vindication in the rising foreign investment and steady corporate tax revenues during the period of lower rates, there is still on ongoing public policy debate about how to get those corporate profits flowing back into the economy.
Mark Carney, the Governor of the Bank of Canada, recently accused corporate Canada of sitting on "dead money" that should be invested, rather than saved.
The Public Policy study ranks countries – as well as provinces – on a broader measure of business taxation called the marginal effective tax rate, which also takes into account sales taxes and tax rates on capital investment.
By that measure, the MER actually increased slightly in 2012 to 19.9 per cent from 18.2 per cent in 2011, due to British Columbia's decision not to harmonize its sales tax with the federal government and because of an expiring federal tax break for manufactures.
The report takes issue with Ontario's decision not to proceed with a previously-promised cut in its corporate tax rate to 10 per cent from 11.5 per cent, predicting it will "hurt growth and jobs."
Ontario said the decision was aimed at erasing the deficit and predicted it would raise an additional $700-million a year in revenue. The Public Policy report says that forecast is overstated and the boost in revenue will likely be between $440-million and $575-million a year.
Dr. Mintz said the main factor that critics of corporate tax cuts fail to consider is "profit shifting," whereby international companies choose to pay taxes in countries and provinces with the most competitive rates.
In an interview, he said this is a main reason why federal corporate tax revenue as a percentage of GDP has largely remained constant at about 3.4 per cent over the past 10 years even as the tax rate has declined.
In the report's ranking of Canadian provinces, the four Atlantic provinces are listed as having the most competitive business tax rates, while B.C., Manitoba and Saskatchewan have the highest.
Internationally, the report found a large gap between Canadian business taxes and rates in the United States, which are among the highest of the 90 countries surveyed.