By telling the fat cats at the Toronto Board of Trade they would have to payfor new tax cuts, Stephen Harper has let the cat out of the bag. He may havetrouble stuffing it back in.
The whole area of corporate taxation is one that is fraught with danger forthe Conservative leader because a lot of Canadians don’t trust corporations,are suspicious of CEOs and their recent crooked dealings, and believe theydon’t pay their fair share.
Harper’s speech was as notable for what itdidn’t say as for what it did. His principal message was that he would notlower the corporate tax rate any further until he also cuts “grants, loansand subsidies” to corporations. And he was quite specific in his examples —he went after Bombardier and the regional economic development agencies.
But, as with everything Harper says these days, you have to read verycarefully. His speeches and sound bites are chock-a-block with calculatedambiguity, a technique he learned from his former boss, Reform leaderPreston Manning.
Harper went after the Liberals’ Technology Partnerships Program, a creationof Paul Martin, pointing out that less than one per cent of the loans madeunder it have been paid back. The program is a legitimate target, acorporate giveaway that to date has gobbled up $6.4 billion. But Harper didnot pledge to get rid of it or cut it back, or demand that the loansactually be paid back. He just said he would ask the auditor general toreview it, thus getting the best of both worlds: He managed to associatehimself with a Canadian hero, Auditor General Sheila Fraser, while making nocommitment to empty one of Bay Street’s favourite troughs. He even quotedformer NDP leader David Lewis’s familiar phrase “corporate welfare bums”from the early 1970s.
But the Conservative leader managed to leave out a couple of things. First, heavoided mentioning one of the biggest corporate welfare bums in the country,the oil and gas industry. Now enjoying staggering windfall profits withskyrocketing world energy prices, this sector will never be touched byHarper, who began his working life with the oil industry, cutting hisideological teeth in political opposition to the National Energy Program.
Oil-industry executives virtually created Harper’s first political party,Reform, personally vetting Manning and his idea for a genuinely free-marketconservative party. When they had finished checking Manning out, theyblessed him, gave the party millions of dollars and told him to move fromEdmonton to Calgary so they could keep an eye on him.
So Harper owes too much to the oil industry to mess with them. That is whyhe didn’t mention the fact — cited in the 2000 Report of the Commissionerof the Environment and Sustainable Development — that one of the mostpowerful and profitable industries in the country received $40.4 billionfrom the federal government between 1971 and 1999, an average of $1.44billion a year. Canadians may not be too impressed with such handouts to anindustry that is choking on its own excess profits.
If ever there were an industry that did not need this kind of help, it is theoil and gas industry. Provincially, it faces extremely low tax and royaltyrates. It receives windfall profits every time world prices are driven up byconflict in the Middle East or OPEC price-gouging. Governments feel realpressure from manufacturers for financial breaks of all kinds because theycan threaten to move their operations offshore. But the energy companieshave no real leverage — they can’t take the oil with them. And the oil andgas sector’s share of subsidies is grossly unfair compared to therenewable-energy sector, which at least has an argument that it needsassistance to get started. In that same 28-year period when oil and gasreceived $40 billion in handouts, renewables received just $200 million.
In addition, this huge giveaway to the oil industry does not include thebillions saved through tax loopholes such as accelerated write-offs anddepletion allowances. Which brings up the really big topic that Harperleft out of his speech — the billions of revenue dollars lost each yearthrough corporate “tax expenditures,” the official name for a long list oftax loopholes that allow Canada’s largest corporations to reduce theirtaxable income.
According to the Canada Customs and Revenue Agency, four out of five ofCanada’s largest and most profitable corporations paid, on average, lessthan $25,000 a year in income tax from 1995 to 1998. In any given year, thenumber of our largest corporations (with revenues of more than $250 million)that pay no tax at all ranges from 29 to 41 per cent. The revenue sacrificedthrough these dubious giveaway programs is about $20 billion a year — roughly equal to the corporate tax revenue actually collected.
Stephen Harper wants to reduce corporate taxes without paying the politicalprice in lost votes from those who think corporations are already paying toolittle. By cutting outright subsidies — a promise made and broken by everyfederal government since 1979 — he is trying to create a perception ofbalance in his approach.
What Harper hopes voters will not realize is that Canada’s corporateincome-tax rate — at 21 per cent, compared to 35 per cent in the U.S. — isalready very “competitive,” and that lowering it further can’t be justifiedwithout eliminating billions in corporate tax loopholes.
His plan can have but one result: less revenue for the things Canadiansneed.