Cancel corporate tax reduction – StarPhoenix

Weir is an economist with the United Steelworkers union’s national office and was a candidate for Saskatchewan’s NDP leadership.

In presenting the recent provincial budget, Finance Minister Ken Krawetz admitted that the government could not afford a previously announced plan to cut Saskatchewan’s general corporate tax rate to 10 per cent from 12 per cent – a move that would have cost up to $175 million annually in lost revenue.

Yet he repeated his intention to proceed with the tax cut by 2015, which could blow a hole in next year’s budget. Fortunately, he now has a year to reconsider this expensive and unnecessary tax break.

The government has argued that it must match corporate tax rates of 10 per cent in other provinces. However, last week’s New Brunswick budget raised its corporate tax rate to 12 per cent. The NDP is poised to win British Columbia’s upcoming election on a platform of doing the same there, leaving Alberta as the only province with a corporate tax rate of 10 per cent.

By next year’s Saskatchewan budget, the choice will likely be whether to follow Alberta in a race to the bottom, or stand with all other provinces in upholding general corporate tax rates that range from 11.5 per cent to 16 per cent.

Saskatchewan already has a lower rate of 10 per cent for manufacturing and processing – the industries most able to relocate among jurisdictions. Corporate taxes do not explain Saskatchewan’s loss of 4,200 manufacturing jobs in the past seven years. For example, several meat-packing plants moved to Manitoba, where such manufacturing facilities actually pay a higher provincial rate of 12 per cent.

Krawetz proposes to cut the general corporate tax rate, which applies to large resource, financial, construction and service companies. Clearly, a potash mine cannot move to another province in pursuit of lower corporate taxes.

Similarly, a construction contractor working on that mine must operate in Saskatchewan. Businesses that exploit local resources or serve local markets do not leave because of modest differences in corporate taxes.

A common misconception is that businesses can simply report their profits in whichever province has the lowest tax rate. In fact, the Canada Revenue Agency apportions each company’s taxable Canadian profits among provinces based on the actual location of its sales and employees.

A corporation operating in a province must pay its corporate tax there.

Many major corporations that operate in Saskatchewan have their headquarters in the United States. Since the American government taxes them on a worldwide basis, cutting Saskatchewan’s corporate tax would simply shift their payments from the provincial treasury to the U.S. treasury.

For example, when an American potash company such as Mosaic repatriates profits to the U.S., it pays the American federal corporate tax rate of 35 per cent, minus the Canadian federal and provincial corporate taxes it has already paid.

Given Canada’s federal rate of 15 per cent, Saskatchewan’s combined federal-provincial rate is 27 per cent. Cutting further below the U.S. threshold would transfer more tax revenue from Saskatchewan to Washington.