Ontario's business sector is warning that the province's competitiveness will suffer if Finance Minister Dwight Duncan cancels the corporate tax cuts planned for next year.
Mr. Duncan indicated on Monday that he is considering ditching plans to cut the tax rate to 10 per cent from 11.5 per cent until Ontario balances its books in 2017-18.
His comments come as the minority Liberal government attempts to control rising spending and get its listing economy back on track.
The province's manufacturing sector is grappling with a soaring loonie, weighing on the competitiveness of its exporters. Though the government is reluctant to add to the business sector's problems, it is under huge pressure to make deep cuts and balance its books.
"Everybody's got to have skin in the game. I can't go and ask the general public to go through this without the business community," Mr. Duncan told Reuters. "What I hear from thoughtful business people is that they want us to get back to balance and they get it … nobody is talking about raising the corporate tax rate other than the (New Democratic Party). We're talking about freezing it."
The possibility that Ontario might put off lowering the corporate tax rates comes as other jurisdictions in Canada and around the world are moving in the opposite direction.
United States President Barack Obama recently unveiled a plan to cut the nation's corporate tax rate to 28 per cent from 35 per cent – the second highest globally behind Japan – in an effort to assuage corporations who have long complained the rate is too high.
British Columbia, Alberta and New Brunswick, meanwhile, have already cut their corporate tax rate to 10 per cent. Ontario's delay would also thwart Federal Finance Minister Jim Flaherty's goal of marketing Canada as a 25-per-cent corporate tax zone.
Mr. Duncan's comments are "part of a pattern of continuing disappointment," said Finn Poschmann, vice-president of research with the C.D. Howe Institute, a public policy think tank. "Business investment tends to travel with a friendly business tax environment. If investment in jobs and growth is what Ontario is looking for, a better tax environment would be better to come sooner rather than later."
Anthony Lacavera, chairman of Globalive Communications Corp. and CEO of wireless communications start-up Wind Mobile, added: "Ontario should look long term and better encourage new companies to choose Ontario as a place to locate. Obviously this move by the government hurts corporate confidence in making investments in Ontario."
Ontario had been on track to cut its corporate tax rate from 14 per cent three years ago to 10 per cent next year, before Premier Dalton McGuinty and Mr. Duncan began hinting in late 2011 they would need to delay the final leg of the tax cut. "Tax rates have come a long way," said Craig Wright, chief economist with Royal Bank of Canada. "They got rid of punitive capital taxes, there has been a gradual reduction of corporate taxes and tax reform. It has been a long series of moves in the right direction."
Nonetheless, for the province to put the brakes on corporate tax cuts "will leave Ontario at a disadvantage," said Allan O'Dette, president and chief executive of the Ontario Chamber of Commerce. "We believe Ontario should maintain its commitment to the corporate income tax rates they promised in the 2009 budget."
The Ontario government faces mounting concerns about its fiscal situation given its high spending and weak competitive situation, which has seen its manufacturing base further disadvantaged by a strong Canadian loonie, leading to tensions with oil-rich Alberta. The Ontario government has pledged to radically revamp its support programs for business in order to save hundreds of millions of dollars, following one of the key recommendations in last month's Drummond report, but Mr. Duncan on Monday repeated the government line that he's not looking in the short-term to sell the government's power, liquor or lottery companies.
"Everybody says 'I want to buy the LCBO', or 'I want to buy Hydro One, or OPG'," he told Reuters. "Even if we really really wanted to do it, there's a lot of reasons why we can't. And I'm not ruling any of that out down the road," he said.
Jon Grant, lead director of Toronto-based packaging company CCL Industries, said if the government is to hold the line on corporate taxes, it must be balanced by other efforts that show it's serious about fixing its fiscal situation. "I think we're losing confidence in the Ontario government's ability to manage its budget and what effect it has on corporations," he said. "We're trying to get corporate tax rates down to be more competitive. With the high Canadian dollar it's even more important. Corporate Ontario has to say to the government, 'Show us the money first, what you're prepared to do – then we'll talk about corporate taxes."
With files from Iain Marlow and Reuters