No need to cut taxes for business

Tom Graham
The Leader-Post
Saturday, March 11, 2006

The Calvert government would do well to reconsider its support for the Vicq recommendations. There’s simply no compelling evidence to further reduce Saskatchewan’s business taxes.”

Urged on by an insatiable business lobby and the usual right-wing crowd, the Lorne Calvert NDP government is strongly hinting that it will implement the recommendations of yet-another report by accountant Jack Vicq in the upcoming provincial budget.

The first Vicq report proposed deep cuts to personal income taxes that favoured the wealthy. These were enacted by the Roy Romanow NDP government, starting in 2000. Now, the provincial government is poised to enact the recommendations of the business tax review committee, also chaired by Vicq, a former associate deputy minister of Finance during the Grant Devine Conservative era.

The recommendations are hardly a surprise. They include: eliminating the corporation capital tax, slashing the corporation income tax from 17 per cent to 12 per cent, boosting the small business tax exemption, and harmonizing the provincial sales tax with the federal GST.

The Calvert government would do well to reconsider its support for the Vicq recommendations. There’s simply no compelling evidence to further reduce Saskatchewan’s business taxes.

First, taxes only represent a small proportion of total business costs. So it’s not surprising that taxes are not usually ranked as a primary factor in a company’s investment decision. Surveys of chief executive officers have shown that taxes rank from 5th to 7th place in terms of priority in deciding where to invest.

Access to skilled labour, resources and markets, utility, land and borrowing costs are typically more important factors in the investment decision.

Second, there is little evidence to support the unquestioned assumption in today’s political discourse that lower taxes spur investment and economic growth.

The federal corporate income tax rate was cut from 28 per cent to 21 per cent between 2000 and 2005. During this period, corporate pre-tax profits soared to a record-high as a percentage of national income, but real business investment in buildings, machinery and equipment languished.

Studies have also found that higher- tax countries like Sweden and Norway have achieved similar or better economic growth and productivity gains than lower-tax industrialized countries.

Third, there is no evidence to suggest that Saskatchewan’s current business tax regime is driving investment out of the province. The reality is that our province, with its bountiful resources, remains a good place to do business.

According to the business consulting firm KPMG, Saskatoon is the second- least costly city in midwest North America in which to operate a business.

Further, Ipsco CEO David Sutherland recently admitted that Saskatchewan’s tax climate was not an impediment to the $4.7-million expansion of his company’s research and development facility in Regina.

Fourth, the implementation of the Vicq business tax cuts will reduce revenues for other urgent social priorities. If fully implemented, these recommendations would siphon at least $180 million annually from our provincial treasury, funds that could be used to boost education, cut sky-high university tuition fees, reduce poverty or establish much-needed new programs, like a universal public child care program.

While it’s true that Saskatchewan’s general corporate income tax rate is higher than our western counterparts, our province’s manufacturing and processing tax rate is the lowest. Alberta has neither a corporate capital tax nor a provincial sales tax, but this is only made possible thanks to much larger deposits of oil and gas. Our social programs would have to be gutted if Saskatchewan was to match our western neighbour’s tax regime.

The bottom line is that corporations have an obligation to pay their fair share of taxes since they benefit greatly from our publicly-owned infrastructure, public education and health systems that create a skilled and healthy workforce.

Implementing the Vicq committee’s business tax cut proposals will do little to spur investment or enhance Saskatchewan’s competitiveness, while leaving less revenue for much-needed social programs and infrastructure. The Calvert government should shelve these proposals.

Graham is president of CUPE Saskatchewan.