From the Frontier Centre for Public Policy

By Ian Madsen

Business groups are justifiably opposed to the federal government’s June 25 increase of the inclusion rate for capital gains tax. But there is another corporate income tax increase looming. It will come in the form of a 2018 corporate tax reduction that is set to expire starting this year. Ottawa ironically intended it to make Canada more competitive amid the 2018 tax reform and cut in the United States.

According to a study by Trevor Tombe at the University of Calgary’s School of Public Policy, Canada’s corporate income tax rate on new investments will jump from 13.7 percent to 17 percent by 2027. Even worse, for Canada’s high-value-added manufacturing sector, taxation will triple. Higher corporate income taxes, in a nation experiencing difficulties in encouraging domestic or foreign investment in new plant equipment, will struggle to reverse meagre productivity growth—a problem noted by the Bank of Canada.

Heavier taxation will hinder future improvement in incomes and the standard of living, making it a serious issue. Increasing income tax on businesses and investment will not increase prosperity and personal income. The legislation to make the 2018 provisions permanent is, alarmingly, not urgent to politicians.

At least one policy could make Canada more attractive to business, investors, and hard-pressed ordinary citizens. It would be to slash corporate income taxes substantially.  Another is to make paying taxes easier, as Magna Corporation founder Frank Stronach suggested. It may surprise some Canadians, but Ottawa’s take from corporate income taxes is a relatively small. However, it is a fast-rising proportion of federal overall revenue: 21 percent in fiscal 2022–23, according to the government, up from 13 percent in fiscal 2000–21, notes the OECD.

Letting companies pay taxes and reducing the tax burden on ordinary people might seem OK to some. However, what happens is that every corporate expense, including taxes, reduces cash flow that reaches individuals. The money remaining in the hands of businesses could either be reinvested or paid out as dividends to owners. Let’s remember that owners are founding families, pension fund beneficiaries (employees, citizens), and ordinary individuals.

As there are fewer available funds, there will be a reduced capacity for capital investment. Investment is required to replace existing equipment, or add new equipment, devices, software, and vehicles for businesses. It only keeps companies competitive and makes employees more productive. This, in turn, makes the whole economy more profitable, thereby increasing taxes paid to governments.

As for the questionable reason for the tax increase, aiming to generate more revenue, recent experience in the United States is informative. The 2017 Tax Cut and Jobs Act reduced corporate income tax from 39 percent of pre-tax income to 21 percent. It resulted in U.S. federal corporate income tax revenue rising 25 percent from 2017 to  2021. Capital investment  rose dramatically too, by 20 percent, a key goal of many Canadian policymakers.

Until recently, the Republic of Ireland had a corporate income tax rate of 12.5 percent, a key selling point in its successful efforts to attract foreign investment over the past several decades. Ireland, with few natural resources, is one of the richest and fastest-growing of the OECD nations, despite a bad real estate crash 15 years ago. Near the lowest in the OECD in tax burden, it nevertheless has a high quality of life and services.

If anything, Canada should cut corporate income taxes to below the levels of its main trading partners and rivals. To do so, it will have to extricate itself from the ill-conceived international treaty that compels signatory nations and territories to have a floor rate of at least 15 percent of pre-tax income.   Ottawa seems enamoured of multinational agreements and organizations, so it may be highly reluctant to abrogate membership in this growth-dampening arrangement. The statutory federal corporate income tax rate in Canada is 15 percent, but all provincial governments impose their own levies on top of that, ranging from 8 percent in Alberta to 16 percent in Prince Edward Island.

By cutting taxes, we can pave the way for a brighter economic future, marked by increased productivity and the prosperity we all yearn for. This move will also ensure our international competitiveness, a goal we are currently struggling to achieve with our current 25 percent rate (OECD).  Canada has a hard time attracting investors. Raising taxes will neither attract more of them nor encourage more investment from existing Canada-domiciled entrepreneurs and companies.

Ian Madsen is senior policy analyst at the Frontier Centre for Public Policy.

From the Canadian Constitution Foundation

“In this case, criminal law power should not be allowed to justify the sweeping inclusion of every imaginable plastic product on the list of ‘toxic’ substances and therefore under the umbrella of federal authority,” … “The Cabinet Order plastic ban is outside the scope of the federal power.”

The Canadian Constitution Foundation (CCF) is appearing as an intervener in the legal challenge to the federal “plastics ban” being heard on June 25 and 26 at the Federal Court of Appeal. The CCF will be arguing that the federal “plastics ban” is outside the jurisdiction of Parliament’s criminal law power.

In November 2023, a Federal Court of Canada judge struck down the Trudeau government’s Cabinet Order declaring all “plastic manufactured items” as “toxic” under the List of Toxic Substances in Schedule 1 of the Canadian Environmental Protection Act. The Order had been challenged by a coalition of plastics companies who had argued that the Order was unreasonable and unconstitutional.

The appeal of that decision is now being heard at the Federal Court of Appeal. At issue is the scope of the federal law power. Section 91(27) of the Constitution Act grants the federal government exclusive authority to make criminal law. Previous court rulings have found and affirmed that prohibiting truly toxic substances, like lead and mercury, under the Canadian Environmental Protection Act is a legitimate expression of that power. But the criminal law power cannot be used to justify the sweeping inclusion of every imaginable plastic product onto the list of “toxic” substances and therefore under federal authority.

CCF Litigation Director, Christine Van Geyn said: “The criminal law power is not a magical incantation. Invoking the words ‘criminal law’ does not transform any issue into something Ottawa can regulate.”

“In this case, criminal law power should not be allowed to justify the sweeping inclusion of every imaginable plastic product on the list of ‘toxic’ substances and therefore under the umbrella of federal authority,” Van Geyn added “The Cabinet Order plastic ban is outside the scope of the federal power.”

The CCF is intervening in the case to argue about the scope of federal criminal law power. Criminal law powers should be applied cautiously. To claim authority to regulate something based on federal criminal law power, Parliament must clearly demonstrate the criminal aspect of the targeted activities. The federal government cannot assume control over an entire area which is not, in itself, harmful or dangerous. This is particularly important when Parliament has asserted control and jurisdiction over an amorphous subject matter prone to overlapping jurisdictions, like environmental regulation.

The Canadian Constitution Foundation is represented in its intervention by Brett Carlson and Rebecca Lang of Borden Ladner Gervais LLP.

You can read the CCF’s intervener factum here.