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The Globe and Mail

Flaherty takes issue with Mulcair’s call to boost corporate tax rates

Canada's Finance Minister Jim Flaherty makes an announcement in Ottawa September 9, 2013. Flaherty announced on Monday a three-year freeze on employment insurance premium rates at 2013 levels.


Jim Flaherty is hoping to pick a fight with Thomas Mulcair over corporate taxes.

The federal Finance Minister sent a letter on Tuesday to the Official Opposition Leader expressing concern over Mr. Mulcair's recent comments on raising corporate taxes.

"When you state that Canada's business taxation level 'get back to something resembling the American combined rate,' you are calling for a nearly 14-point increase," Mr. Flaherty states in the letter, which was obtained by The Globe and Mail.

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The letter says the current U.S. combined rate is 40 per cent, while the combined federal and provincial rate in Canada is 26.45 per cent.

"What the NDP is proposing is a 50 per cent tax hike that would add $25-billion annually to the tax bill of job creators in Canada," Mr. Flaherty said, noting that U.S. President Barack Obama is talking about reducing business taxes.

Mr. Mulcair made his comments about taxes to reporters last week during a caucus retreat in Saskatoon.

It is not clear whether he was hinting at a change in party policy.

During the 2011 federal election campaign, the NDP under leader Jack Layton released a platform that included a promise to raise nearly $10-billion a year by increasing the corporate tax rate to 19.5 per cent, an increase of 4.5 percentage points over the current rate.

The platform contained language similar to Mr. Mulcair's recent remarks. For instance, it said: "We will keep Canada's corporate tax rate competitive by ensuring that our combined federal/provincial Corporate Income Tax rate is always below the United States' federal corporate tax rate."

George Smith, a spokesman for Mr. Mulcair, did not rule out the possibility that the NDP would propose a higher rate than 19.5 per cent.

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However, he provided a statement from Mr. Mulcair that says the NDP's future proposals on corporate taxes will be "reasonable" and "quite similar to those we've made in the past."

"According to the [Organization for Economic Co-operation and Development], the combined U.S. federal and state tax rate is 39.1 per cent while the combined Canadian federal and provincial tax rate is 26.1 per cent. As such, that means that there is room for movement on corporate taxes while keeping the combined rate several points below the United States and be very competitive," the statement reads. "New Democrats will bring forward a very prudent, responsible approach based on the same principles that led our founder Tommy Douglas to table 17 balanced budgets in a row as premier of Saskatchewan."

The federal corporate tax rate has fallen from 22 per cent in 2007 to 15 per cent as of Jan. 1, 2015. Corporations must also pay the provincial corporate tax rate, which ranges from a high of 16 per cent in Nova Scotia and Prince Edward Island to a low of 10 per cent in New Brunswick.

During the period of rate cutting – which included the major recession of 2008-09 – federal corporate tax revenue dropped from a peak of $40.6-billion in 2007-08 to a low of $29.5-billion the next year, before rising to $31.7-billion in 2011-12. Data for 2012-13 will be released in the coming weeks.

Measured as a percentage of GDP, corporate tax revenues dropped from 2.7 per cent in 2007-08 to 1.8 per cent in 2011-12.

Corporate tax revenue was higher than normal in 2007-08. Using a different point of comparison produces a less dramatic drop in revenue. In the 2005-06 fiscal year, when the Conservatives came to power and the rate was 22 per cent, corporate tax revenue was $31.7-billion – the same as in 2011-12. However, as a percentage of GDP, corporate tax revenue was 2.3 per cent in 2005-06 and 1.8 per cent in 2011-12.

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