Budget 2024

Tax and spend fiscal plan will inhibit growth

As published in The Hub

The federal government has a spending problem. Not only has it proven unable to reign in current spending, it appears poised to announce new spending in next month’s budget. This raises the perennial question of how it intends to pay for it all. 

The latest rumour in Ottawa is the government will try to solve its problem by introducing a new corporate tax—one that targets Canada’s most successful companies. Large businesses, after all, have become a popular punching bag for politicians. Who would care if their profits were further curtailed? 

As it turns out, we should all care, because we would all feel the impact. 

Political attacks on private sector companies ignore the symbiotic relationships Canadians have with companies as employees, suppliers, and investors. Viewed through those prisms, taxing corporate profits undermines the interests of Canadians. 

Take employment: the largest publicly traded companies in this country employ millions of Canadians.1 The jobs, salaries, and benefits of those Canadian employees—which can include various forms of supplemental health and pension plans—depend on the revenues and profitability of the businesses they work for. 

Take supply chains: many, if not most, of Canada’s small- and medium-sized enterprises (SMEs) form part of the domestic supply and value chains of larger companies. Those business-to-business ties create jobs for millions more Canadians. If large companies have lower revenues, they’ll purchase fewer goods or services from Canadian suppliers.

Take investment: millions of Canadians have their retirement savings invested in publicly traded companies listed on the Toronto Stock Exchange either directly through personal shareholdings or through mutual funds. The value of those investments is based on stock prices which depend on a company’s current profitability and its future growth prospects. 

If government imposes new corporate taxes and uses those tax dollars to support new spending, it will force affected Canadian companies to scale back on growth plans, pass the cost of the taxes on through price increases, or, worse, cut existing operations. That would be bad for all their Canadian consumers, employees, suppliers, and investors.

Any of these outcomes would exacerbate the affordability crisis. Reduced profits lead to reduced operations, which means fewer goods produced and services provided. If operations and revenues decline, it will cause job cuts across supply chains. Higher unemployment and prices with lower business investments is a pretty good recipe for economic stagnation.

It would also hurt retirees. A new tax on profits would cause share prices to fall, lowering the value of investments. This, at the same time Canada is undergoing a demographic shift that is seeing more and more Baby Boomers leaving the workforce and becoming retirees who plan to rely on their investments to sustain their post-career livelihoods.

Think about this in the context of a Canadian household. Take a family who, after paying all their taxes—including income taxes, capital gains taxes, property taxes, and other consumption taxes such as the HST—still manages to have a bit of disposable income. Imagine the government then saying they have too much left over and need to pay a new tax. 

When government targets profitable companies, it doesn’t credit those companies for the jobs they create or the investment portfolios they support or the SME-sized suppliers they keep in business. Government also fails to acknowledge that because taxes are based on a percentage of revenues, when companies earn more, they already pay higher taxes.

This is, of course, also true of the HST. When the cost of goods and services is driven higher due to inflation, the amount of tax the federal government collects is higher as a percentage of those higher prices. The dirty little secret that government doesn’t advertise is that during this inflationary period, it is collecting more tax revenues than before COVID.

If government wants to focus on the bottom line, here it is: higher corporate taxes won’t help Canadians they will hurt Canadians. It will further discourage business investment in Canada and force successful Canadian companies to either constrain or cancel any growth plans. New taxes on profits will hurt consumers, employees, suppliers, and investors.