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OTTAWA — Tom Mulcair is counting on revenue from a promised corporate tax hike to help pay for his other pricey platform planks — but that may not give him enough extra money to work with.
The NDP leader has not yet spelled out precisely how high he would boost the federal corporate tax rate, which currently stands at 15 per cent.
But Mulcair earlier this month said he would impose “a slight and graduated increase” that would still be “far below the average that the Conservatives had for the 10 years that they’ve been in power.”
The average rate under Stephen Harper’s government is 17.5 per cent. If Mulcair really intends to stay “far below” that, he’s looking at something like a one percentage point increase — maybe two, if one stretches the definition of “far below.” And he’s now saying even that small hike would be phased in over a number of years.
Once fully implemented, that would mean at most an additional $3 billion flowing into federal coffers annually, based on the NDP’s estimate that each percentage point increase in the corporate tax rate would add $1.5 billion in revenue.
“That’s a very small increase in potential revenues,” says University of Laval economist Stephen Gordon.
Gordon says it might just be enough to offset the revenue loss caused by the steep and continuing slide in oil prices — which has the parliamentary budget officer predicting a $1 billion federal deficit this year, notwithstanding Conservative promises to the contrary.
But there’d be nothing left over to pay for the new spending Mulcair is proposing on things like a $5-billion national child care plan or restoring some $36 billion in health care transfers to the provinces.
Mulcair has hinted in the past that he was originally contemplating a bigger corporate tax hike that would net far more cash.
Two months ago, he said an NDP government would boost the federal corporate tax rate to “the 18 to 19 (per cent) range” — that is, a three or four point hike.
At various other times, he’s promised to keep Canada’s combined federal-provincial corporate tax rate (currently 26.3 per cent) below the average of the G7 industrialized countries (29.9 per cent) or below the combined federal-state rate in the United States (39 per cent). By those yardsticks, an NDP government could increase Canada’s corporate tax rate by at least three points, up to as much as 12 points.
Mulcair’s apparent change of heart is perhaps “a recognition that very large increases in the corporate tax rate are more trouble than they’re worth,” says Gordon, noting that corporations are adept at finding legal ways to avoid paying additional taxes.
Regardless of Mulcair’s past musings, Jim Stanford, an economist with Unifor, says he never expected the NDP to propose more than a one or two percentage point increase.
“It doesn’t fit with his generally cautious approach to economic policy issues and, obviously, the more aggressive he is on the tax side, the more the Conservatives and Liberals will come charging,” Stanford says.
He notes that a one or two point increase is in line with what other provinces, such as British Columbia, Alberta, New Brunswick, have done recently with their corporate tax rates.
Stanford says corporate taxes alone can’t pay for all the programs and services needed from the federal government. That’s why this year’s alternative budget, crafted by the Canadian Centre for Policy Alternatives, in which Stanford was involved, proposed a number of tax measures, including a hike in corporate taxes, a carbon tax and a wealth tax, to pay for ambitious new investments in things like child care, elder care, pharmacare and infrastructure.
But beyond promising to raise corporate taxes, Mulcair has been adamant that he won’t increase other taxes or impose a wealth tax. His only other tax promise has been to scrap the Conservative government’s scheme to allow couples with children to split their income, which would put some $2 billion back in government coffers.
“The reality is, if Mr. Mulcair is going to limit his new revenues to the corporate tax side and his increment on corporate taxes is going to be modest, as I would have expected, then they aren’t going to have a lot of new spending in their program,” says Stanford.
Unless, of course, Mulcair is prepared to abandon his commitment to running balanced budgets — something Stanford believes would make sense.
In the face of increasingly dismal economic news, Stanford says it’s “irresponsible” to commit to balancing the budget at all.
