Despite the tax cuts given to corporations by both the Liberals and Conservative governments, it has not translated into increased productivity, that is both technological innovation and job growth. So the Harpocrites latest national tour promoting Job Creation Through Corporate Tax Cuts, is all a dog and pony show, the facts don't meet the rhetoric. For five years tax cuts have not resulted in increased RD investment by corporations nor investment in technology upgrades, and of course few new jobs.But hey if you don't believe me how about these guys:Canada has made major public investments in research, primarily through universities, but private-sector innovation has remained relatively weak. The OECD ranks Canada as 16th in business spending on R&D as a share of the economy, despite having the second-highest level of government support for such investment. The overall policy and economic environment has become much more encouraging over the past decade. The marginal tax rate on new business investment has dropped sharply, making Canada more attractive internationally and opening a significant tax advantage over the United States.
Thomas d’Aquino and David Stewart-Patterson are the former chief executive and president and executive vice-president of the Canadian Council of Chief Executives and co-authors of the book Northern Edge: How Canadians Can Triumph in the Global Economy. Read more: http://opinion.financialpost.com/2011/01/25/unleashing-innovation/#ixzz1DCwwrEmV
And of course Bank of Canada boss Mark Carney regularly reminds us that corporate failure to invest results in lack of productivity. So why give them tax cuts, clearly it doesn't increase productivity or create jobs.
In fact continued tax breaks federally and provincially to Big Oil has had a negative impact on jobs in Canada.
A 2009 Industry Canada report found that 54 per cent of Canada's loss of hundreds of thousands of manufacturing jobs since 2002 is due to the oil sands boom replacing good, stable employment with short-term construction work in the tar sands and low-wage service sector jobs elsewhere in the economy. Canada has lost one-third of its post-war gains in value-added (manufactured) exports since 1999/2000, Canadian Auto Workers senior economist Jim Stanford told the Institute for Competiveness and Productivity in 2008.
The problem is not worker productivity, since workers in Canada are highly productive, its investment in actual technology.
The Canadian manufacturing sector employed more than 2.3 million people in 2002. By last September, manufacturers had shed some 580,000 jobs - more than one in four – and most of these losses occurred before the recession. There are few signs that this trend will reverse itself soon.
the fall in manufacturing employment was largely due to attrition, not layoffs. And one of the surprises of the recession is that manufacturing unemployment is now lower than it was before the recession – although this result was largely achieved by workers leaving the sector altogether. But it’s a puzzle nonetheless: output per worker in the manufacturing sector has been increasing more than three times as fast as the economy as a whole. If productivity growth is the key to sustained prosperity, then shouldn’t manufacturing be increasing in importance?
Tax cuts have not created jobs, since corporations have used the break to accumulate capital which if invested at all is invested in the stock market and in mergers and acquisitions, not in workers wages, technology or pensions.
Corporations in this country are flush with cash and ready to grow.
"In some ways, corporate Canada has never been stronger than it is right now," Tal said.
"Better-than-expected profitability and a reluctance to spend in recent years has left Canadian businesses sitting on a record amount of cash and confident about the future.”
Swift and strategic downsizing during the recent recession paid off, Tal said. It allowed companies to withstand the downturn and ramp up hiring at a much faster clip than in the U.S.
In fact both private corporations and ironically our public pension fund the CPP have led the way in taking that capital and investing it abroad.
Foreign investment is a two-way street.
The Canada Pension Plan Investment Board and Onex took top honours for the biggest global private equity acquisition of the year with their $4.4-billion purchase of U.K. manufacturing giant Tomkins.
PricewaterhouseCoopers suspects Canadian companies will continue look past North America to emerging markets for better deals.
Last year, Canadians made major “buys” in nearly every continent with deals in the fourth quarter alone stretching to the Middle East, Asia and Africa.
“These transformational deals are beacons for what will become the norm for Canadian deal making going forward,” Knibutat said.
Joint ventures and minority purchases will also become more popular, it said. These deals allow companies to test drive sectors while minimizing financial and political risk, PricewaterhouseCoopers said.
“Organic growth prospects within North America remain limited, so for many well capitalized corporates and funds, M&A may be the best and only tool for growth,” Knibutat said.
A “perfect storm” of companies flush with cash, improved access to financing and lacklustre organic growth prospects means the M&A outlook is even brighter for Canada in 2011.
Global public companies have an estimated $3 trillion in cash reserves. Private equity firms hold another $500 billion.
Competitive tensions stemming from strong takeover demands are likely to entice sellers back in the market and that should create a more balanced number of buyers and sellers, PricewaterhouseCoopers said.
All this means Canada will likely continue to outpace the globe when it comes to M&A activity, buoyed by a well-capitalized financial system, strong dollar and leadership in hot deal sectors.
So rather than calling corporate tax cuts job creators, we should call a spade a spade; all that tax cuts do is reduce government revenue, social capital, while giving corporations more capital. Tax cuts are public funding of private profits, without having shareholder benefits. Tax cuts are corporate welfare.
A broad look at how corporate tax rates have changed Canada in the past suggests the impact of the small cuts planned for this year and next is marginal for most companies.
The larger impact is on the government's bottom line, not the corporate bottom line — even though corporate taxes have now become key in determining whether there will be a spring election.
Indeed, federal Finance Department documents show that the reduction of corporate income tax — from 18 per cent in 2010 to 16.5 per cent in 2011 and then to 15 per cent in 2012 — will be expensive for any government battling a deficit. The cost is about $1.6 billion in foregone revenue in the 2011-2012 fiscal year, $3.9 billion the year after, and a total of more than $10 billion over three years.