The Harper government's latest corporate tax cut and another reduction planned for next year will add 1.6 percentage points over two years to economic growth and create tens of thousands of jobs, Canada's main industrial lobby group argues in a report set for release Wednesday morning.
According to calculations by Canadian Manufacturers & Exporters, the 2011 and 2012 installments of Finance Minister Jim Flaherty's five-year tax-cut plan will cost Ottawa $6.2-billion in lost revenue, but add $25.8-billion to gross domestic product as businesses use the savings to hire workers and invest, creating new sources of income for all levels of government.
Moreover, CME argues in its report, the economic impact of planned provincial corporate tax cuts over the next two years will match that of the federal cuts.
All told, assuming the national economy grows by an average 4.5 per cent in each of the next two years -- in nominal terms, or before price fluctuations are taken into account -- and that corporate profits before taxation grow at an average annual rate of 10 per cent, the combined tax cuts will increase after-tax business profits in Canada by almost 11 per cent, CME says.
That would translate into a 0.52-percentage point drop in Canada's unemployment rate, 98,800 net new jobs, a 2.4-per cent gain in Canadians' incomes, and a 4.4-per cent increase in total business investment, CME says.
``More revenues are generated across all levels of government in Canada than lost as a result of tax rate reductions,'' CME says in its report. ``Over the past ten years, lower corporate tax rates have led to stronger employment growth and lower levels of unemployment, higher levels of business investment in new facilities, machinery and equipment, greater spending on research and development, and faster growth rates for GDP and the personal incomes of Canadians.''
Mr. Flaherty has lowered the federal tax rate on corporations from 21 per cent to 16.5 per cent since the Conservatives came to power in 2006, and is scheduled to cut the rate to 15 per cent at the beginning of next year.
The report comes as the opposition Liberals threaten to vote against Mr. Flaherty's next budget unless it strips out the last leg of the tax cuts. The government could still survive if it is able to work out a compromise with the New Democratic Party, which has indicated it would be able to live with lower taxes for business provided any cuts are targeted to encourage job creation and investment, rather than an across-the-board reduction in the corporate tax rate.