What does Ignatieff hope to achieve?

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by L. IAN MacDONALD
Sun Media, Friday, January 14, 2011

Michael Ignatieff says it's "crazy" to cut corporate taxes when Canada has a $45-billion deficit, and he reiterated the Liberals would vote against the budget if Finance Minister Jim Flaherty went ahead with plans for the last phase of corporate tax reductions.

This just in, Michael. The tax cuts were part of the 2007 budget to reduce corporate taxes from 22% to 15% over five years. As Flaherty pointed out in a speech in Washington the same day: "This is already legislated."

Then, the current deficit for the year ending March 31 may be $45 billion, but it will be significantly less in the new fiscal year--the one covered by the budget Iggy is threatening to vote against.

And it will be less than half the current deficit in the following fiscal year, says Flaherty, returning to balance and "a small surplus" by 2015.

Moreover, our deficit is cyclical, only 3% of GDP, with a debt-to-GDP ratio of only 31%, as compared to the U.S. deficit of $1.4 trillion, which is equivalent to the entire GDP of Canada, with the debt-to-GDP forecast to cross 100% next year. That's called a structural deficit and debt problem, and we don't have either one.

If Ignatieff wants to rescind the corporate tax cuts, he'll have to do it himself after winning an election. Meantime, what's he's suggesting is intellectual nonsense.

There is no prospect of Flaherty rescinding his own tax cuts, and Iggy's deficit number going forward is simply wrong. That's what's "crazy," although Flaherty simply called it "dumb."

Ignatieff wants to freeze or roll back corporate tax rates--as of this month they've been reduced from 18% to 16.5%--so that he can have money for things such as home care. He wants to "create fiscal room to finance some dreams."

In doing so, he ignores an inconvenient truth. Investment goes where there is competitive advantage, and investment creates jobs.

How much competitive advantage? Canada already has the lowest corporate tax rates in the G7. But when fully implemented at 15% next year, they will way below the U.S. at 35%.

As Flaherty noted in his Washington speech, most provinces will be aligned with a 10% corporate tax by next year for a combined federal and provincial rate of 25%, compared with 40% in the U.S. when state taxes are added in.

How many jobs are being created by the corporate tax cuts? Lots, according to the Canadian Manufacturers & Exporters: 99,000 jobs over two years. Let's call it 100,000 jobs. The CME also says the cuts will create $6 billion of new investment. There's already been a surge of new investment, up 20% in the third quarter of 2010.

And corporate tax receipts were actually up 12% in the first half of last year, reflecting a positive turn in the economy coming out of the recession, as well as the economic fruits of new investment.

So, to review the bidding, Iggy wants to rescind corporate tax cuts that are creating 100,000 jobs, while corporate tax receipts are actually going up.

What is Ignatieff trying to accomplish? Taxing the rich and ending corporate welfare has always been the NDP's hobby horse. By the way, good luck getting CEOs to buy tables for Liberal fundraisers.

 
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