“Corporate Tax Freedom Day” fell on January 29 this year, says a report from the Canadian Labour Congress (CLC). That’s more than five months before “Tax Freedom Day” for individuals.
The report also found Canadian companies have accumulated a cash pile of some $541 billion, money the CLC says isn’t being used for investment and innovation.
A “tax freedom day” is the day in the year when you stop working for the government and start working for yourself. The higher your taxes, the later your tax freedom day.
“Governments have slashed corporate taxes so deeply that in 2012 companies paid their share of taxes to all levels of government for the entire year by January 29,” CLC secretary-treasurer Hassan Yussuff said in a statement.
How does that compare to individuals’ taxes? Last year, according to The Fraser Institute, Tax Freedom Day for individuals fell on June 10. That’s two days later than the June 8 freedom day the year before, and more than five months after companies’ freedom day.
It’s further evidence that, as Canada has cut corporate taxes aggressively to compete in an increasingly globalized economy, households have had to pick up the slack in tax revenue.
Canada’s corporate tax rate has fallen to 15 per cent from 28 per cent in 2000, while taxes for individuals have remained more or less steady during this time.
For the first time ever, this year more than half of the government’s revenue will come from personal income taxes. That’s up from about 30 per cent 50 years ago.
The CLC argues the tax cuts haven’t delivered the investment and innovations that they were meant to encourage. Instead, companies are seeing profits rise and are hoarding cash.
“Business investment in research and development fell from 1.13 per cent of GDP in 2000 to 0.88 per cent of GDP in 2012. Investment in employee training and skills development is down by 40 per cent since the 1990s,” the report says.
Meanwhile, companies’ cash holdings grew more than 300 per cent between 2000 and 2012, the report found, to $541 billion from $182 billion.
The CLC, an umbrella group of unions, isn’t the only one worried about cash hoarding. Former Bank of Canada governor Mark Carney frequently criticized companies for allowing their cash stockpiles to grow. The current BoC governor, Stephen Poloz, has been less vocal on the issue.
“To pay for its tax breaks, Ottawa has borrowed billions and driven up the national debt,” Yussuf said. “Now, the government has chosen to make big cuts to public services in order to pay the bill for its tax giveaways.”
Finance Minister Jim Flaherty has vowed to balance the budget by 2015, but the proposed cuts to the public service and reductions in services designed to do this have been met with political resistance.
The federal government’s next budget lands on February 11.
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