The Truth About Canada (17 page)

When comparative international figures have been published every year, the suggestion that corporate taxes in Canada were far too high have proved laughable. PricewaterhouseCoopers’s comparison of total corporate tax rates back in 2005 showed that, in a list of 22 OECD countries, Canada came in way down in 16th place in the total tax rate as a percentage of profits. That put us below the United States, and below Italy, Belgium, France, Greece, Spain, Germany, Sweden, Austria, Japan, Australia, the Netherlands, Finland, Portugal, and Norway as well.

In their 2006 economic survey of Canada, the OECD pointed out that back in 2003, total corporate taxes paid on goods and services as a percentage of GDP in Canada were already almost 3 percent below the OECD average. In the list of 30 OECD countries, Canada was down in 27th place, far below the OECD average.

And by the way, the next time you read about the Fraser Institute’s so-called “tax freedom day” — the day in the year when you have earned enough to pay all your annual taxes and the rest of your earnings no longer go to the government — you might let them know that they lose all credibility by intentionally basing their calculations on cash income instead of total income, which would make a large two-month difference in their calendar date.

The right-wing anti-taxers frequently go out of their way to pretend that total government revenue as a percentage of GDP is synonymous with tax as a percentage of GDP. It’s nothing of the sort. Total government revenue includes many things not related to tax, things such as rental income, transfers from government enterprises, fines, fees, sales revenue, gambling revenue ($13.3-billion in 2006), etc.,
etc.

However, even if we are conned into using this very misleading and frequently used comparison, of the 30 OECD countries Canada was still down in 17th place, at 40.3 percent of GDP in 2006, well behind a group of countries in the range of 45 percent to 60 percent.
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And shouldn’t we ask why the Fraser Institute and Canada’s business press have failed to publicize the “tax freedom day” for corporations, which York University tax expert Neil Brooks and author Linda McQuaig point out would come every year in January!

One other point. You might also want to ask the Fraser Institute how they manage to get away with giving their wealthy right-wing corporate donors tax receipts. They manage to be a “charity,” because they somehow claim that they are not engaged in political activities “to influence law, policy and public opinion” by way of conferences, speeches, lectures, publications, or published or broadcast statements. How the tax department allows this “charity” to get away with such blatant deception is totally beyond comprehension. Of course it’s you, dear reader, who ends up involuntarily paying for the Fraser Institute’s propaganda.

Jim Stanford suggests that “one option is to simply admit the corporate tax cuts are a failed experiment in trickle down economics.” He puts corporate taxes into perspective:

Federal corporate income taxes were cut by 7 percentage points between 2001 and 2005, saving companies at least $10-billion a year. They aren’t spending the money on investment. So, let’s channel it into needed capital spending … projects such as hospitals, colleges and universities, transportation and communications, infrastructure,
etc.
Everyone admits we need more of these long-term investments.

Or, why not use at least half of the increased tax revenue that we should be getting from corporations to reduce the tax load on individuals? There’s a radical thought. Economist Don Drummond of TD Bank Financial Group calls the 2007 mini-budget’s personal tax relief “paltry … it’s just a derisory amount.”
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And in 2012–2013, the share of personal taxes as a percentage of GDP will go up even further, while corporate taxes to GDP will continue to fall. So individuals will pay four times as much tax as a percentage of GDP as corporations.

Oh, yes, for yet one more reason why the Senate of Canada should be abolished, simply consider their 2005 call for even more across-the-board tax cuts for corporations.

Before we turn to personal tax in Canada, let’s again look at the supposed need to cut corporate taxes in relation to productivity and competitiveness. Of course our right-wing “think tanks” keep telling us that high taxes hurt our competitiveness. Interesting. The World Economic Forum and the World Bank both rank the Nordic countries at or near the top of their competitiveness lists. Yet Sweden, Denmark, Norway, Finland, and Iceland have high tax-to-GDP ratios. And productivity expert Andrew Sharpe has shown that eight “high tax” Western European countries have higher output-per-hour levels than the United States, while OECD forecasts for the largest current account surpluses invariably include “high tax” countries such as Norway, Sweden, Finland, the Netherlands, and Germany.

The 2005 analysis of the World Economic Forum is instructive. Four high-tax Nordic countries were ranked in the top 10 in competitiveness. These countries also have generous social services and very low rates of child poverty and are invariably ranked very high in quality-of-life surveys. In the same World Economic Forum survey, Canada ranked 15th in competitiveness.

If, as we have seen, corporate taxes in Canada have been steadily coming down, how do you explain the continuing poor business competitiveness and productivity ratings? Andrew Sharpe writes: “Growth in the machinery and equipment capital stock and capital-labour ratio has fallen off in recent years, reflecting slower investment growth. This has reduced the rate at which new productivity enhancing technologies are put into operation.”
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If this doesn’t yet again make a mockery of big-business promises and performances, and the reasoning behind the need for even more corporate tax cuts, I don’t know whatever would or could.

I recommend the paper
The Social Benefits and Economic Costs of Taxation: A Comparison of High-and Low-Tax Countries
by Neil Brooks and Thaddeus Hwong, published by the Canadian Centre for Policy Alternatives in December 2006. Brooks and Hwong’s paper starts this way:

“I believe all taxes are bad.” Stephen Harper made this remark during the federal election last year.…

Taxes are the price citizens of a country pay for the goods and services they collectively provide for themselves and for each other. So it is difficult to know exactly what Harper meant when he said he believes all taxes are bad. Was he saying that all action taken collectively by citizens through democratically elected institutions are bad?

Tax levels in Canada have always been substantially below those in most other industrialized countries, and they have been significantly reduced over the past few years, yet the crusade against them continues unabated. In the average European country, tax levels were almost 5 percentage points of GDP higher than those in Canada.

This document shows that the so-called “high tax” countries score better in 42 out of 50 social and economic measures than the low-tax countries, with lower poverty, better income distribution, much better worker economic security, more leisure time, less drug use, and a higher GDP per capita. People in these countries say they are more satisfied with their lives, they have a higher ranking in post-secondary achievement and innovation, and pension levels are higher. In all the higher-tax Nordic countries there is greater gender equality, lower rates of infant mortality, longer life expectancy, and homicide rates are lower.

By way of contrast, say Brooks and Hwong,

Americans bear incredibly severe social costs for living in one of the lowest-taxed countries in the world. For a strikingly large number of social indicators, the United States ranks not only near the bottom of a list of 19 industrialized countries, but it ranks as the most dysfunctional country by a considerable margin.

And back to the subject of productivity:

On average the “high-tax” Nordic country workers produce goods and services valued at $44.1 an hour, while Anglo-American workers only produce goods and services valued at $38.2 an hour.

On the subject of competitiveness,

Every fall, the World Economic Forum, a business-dominated, Geneva-based, private organization, releases its Global Competitiveness Report. The report contains a comprehensive index that measures the competitiveness of countries based upon around 150 variables, including each country’s macroeconomic performance, the quality of its public institutions, and the level of its technological readiness. On its index of growth competitiveness, the high-tax Nordic countries are significantly more competitive than the low-tax Anglo-American countries (an average score of 5.66 versus 5.35)…. The World Economic Forum concluded that “There is no evidence that relatively high tax rates are preventing these countries [the Nordic countries] from competing effectively in world markets, or from delivering to their respective populations some of the highest standards of living in the world.”

The low-tax United States ranks as the sixth most competitive economy in the world, but the high-tax Finland was the second most competitive country in the world. In addition to Finland, two other Nordic countries also rank in the top five most competitive countries in the world, with Sweden as third and Denmark as fourth.

What should we have done instead of cutting the GST? After the 2007 mini-budget, James Travers of the
Toronto Star
put it this way: “Saving each of us pennies on coffee will cost us at least $34 billion over 5 years, money more profitably spent on health care, education, cities, poverty and the environment.”
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Or how about a proper child-care
program, a national pharmacare program, some decent social housing? Forget it. Finance Minister Jim Flaherty has already said there will be no new spending programs of consequence.

Is cutting the GST good economics? The
Globe and Mail
’s Jeffrey Simpson says, “To present an economic package that offers $3 in consumption tax savings for $1 in personal income tax savings is an economic travesty, a resolute defiance of international practice, a wilful disregard of informed domestic advice, an economic nonsense and a political bet on economic illiteracy.”
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As might have been forecast, the C.D. Howe Institute’s former leader Jack Mintz has already been calling for even greater corporate tax cuts.
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But instead, after what you’ve read in this chapter, and will read in the next about excessive rates of personal taxes in Canada, you might ask, Why not cut personal taxes? The reason … wait for this: according to Mintz, personal tax rate reductions are fiscally expensive.

19

PERSONAL TAXES

B
etween 1961/1962 and 1966/1967, the total of personal income tax in Canada was never greater than 5 percent of GDP. From 1977/1978 to 1985/1986, it was never higher than 6.9 percent, and most years it was between 6 and 6.3 percent. Then, beginning with the first year of the FTA, the personal tax share jumped to 7.7 percent of GDP and has been close to or over 8 percent in most of the years since. In another comparison, whereas in 1962/1963 corporations paid over 20 percent of total federal tax revenue, by 2005/2006 this was down to only 14.3 percent.

What about total federal government income tax revenues, personal and corporate, as a percentage of GDP? Again, contrary to conventional wisdom, at 10.2 percent of GDP for 2006/2007, they are below the average level for the years 1995/1996 to 2004/2005.
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A somewhat different perspective comes from looking at the share that personal income tax constitutes of total federal government revenues. In 1965/1966, it was as low as 28.9 percent. In 2005/2006, it was all the way up to 46.7 percent. By 2011, it is scheduled to increase to over 53 percent. In other words, once again we can see that there has been a major shift in taxes from corporate sector tax to personal income tax.

How does personal tax in Canada compare with personal taxes in other countries? Only seven OECD countries have higher personal taxes
as a percentage of GDP: Australia, New Zealand, Belgium, Denmark, Finland, Iceland, and Sweden. But 22 countries have lower total taxes on personal income. Canada’s rate is higher than the OECD and the EU averages and is the highest in all the G7 nations.

If we look at taxes on personal income as a share of total taxation, Canada has a higher percentage than all but three other OECD countries: Australia, New Zealand, and Denmark.

Before the most recent GST cuts, taxes on goods and services in Canada as a percentage of GDP in 2004 were 8.7 percent, while the OECD average was 11.4 percent. In these taxes, Canada is far down in 27th place.
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In 2004, per-capita tax revenue in Canada in U.S. dollars came to $10,552, compared to $10,147 in the United States, a much lower difference than what is commonly trumpeted by many of our right-wing, continentalist commentators and many of our politicians. Meanwhile, please note that the OECD average was $11,229 (U.S.), and the EU average $12,008 (U.S.).

In 1990, Canadian tax-filers, on average, paid $12.25 of federal tax for every $100 of income. By 2002, that had declined to $11.18.
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Despite what
Maclean’s
has told us, the top federal income tax rate in Canada has been 29 percent. The highest income earners pay an overall
effective
tax rate of 31.8 percent (2004), that is the tax
actually paid
, while “non-high income” filers paid roughly 12 percent,
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and the overall effective personal rate was 16.3 percent. Again, this is quite different from what we often read in the press.