Finance Minister writes McGuinty March 3rd, 2008

March 03, 2008

Dear Premier

May I remind you, I am not only Canada's Minister of Finance, I am a Member of Parliament from Ontario. My family home is located in Whitby, Ontario and I am proud to call this province home. Like all the people of Ontario, I have a stake in the future of this great province and I am not about to sit quietly and watch opportunity pass us by.

Premier McGuinty, you may take offence to my comments, but I am stating an unequivocal fact: Ontario's business taxes are currently the highest in Canada. Your own provincial Task Force on Competitiveness, Productivity and Economic Progress states that Ontario has, "the highest taxation on new business investment among developed economies."

Economist Jack Mintz also pointed out recently that, "Ontario's effective tax rate on capital is by far the highest in Canada, but it's also high relative to the U.S. and it's high relative to many [other] countries."

If this trend continues, Ontario's Marginal Effective Tax Rate, the overall tax rate on new business investment, will be 30.7 per cent in 2012, compared to only 18.8 per cent in Quebec.

Mr. McGuinty, like it or not, this has a negative impact on future investment. While you point fingers at others for your problems, provinces such as B.C. are lowering their business taxes in order to take on the world and succeed.

I understand the manufacturing and processing sector has been struggling with a high Canadian dollar, a slowing U.S. economy, high energy prices and competition from abroad. That's why in Budget 2008 the Government of Canada:

• Extended the Accelerated Capital Cost Allowance providing manufacturers with an additional $1 billion in tax relief;
• Introduced a $250 million Automotive Innovation Fund;
• Extended the Targeted Initiative for Older Workers; and
• Established a $1 billion Community Development Trust with more than $357 million of this funding flowing directly to Ontario.
  

Last fall, our government set out a long-term plan to reduce the federal business income tax rate to 15 per cent by 2012. This bold initiative will give Canada the lowest overall tax rate on new business investment in the G7 by 2010, and the lowest statutory tax rate in the G7 by 2012.

Mr. McGuinty, if you consider our Tax reductions since 2006, we are providing $21billion in incremental tax relief to Canadians and Canadian businesses this year. This is equivalent to 1.4 per cent of Canada's GDP. As a share ofthe economy, this is significantly greater than the stimulus package offered by the U.S.

Mr. McGuinty, you may want to portray this as a personal attack or somehow "undermining" the economy. My comments are nothing less than a wake up call. As Canada's Minister of Finance, I travel across Canada and abroad, seeing what others are doing to increase productivity and competitiveness. They face similar challenges, yet they are lowering taxes and seizing opportunities.

Mr. McGuinty, you can also seize opportunity in your upcoming budget:

• You could set a goal of reducing its corporate income tax rate to 10 per cent, to help Canada reach a combined federal-provincial corporate tax rate of 25 per cent by 2012;
• You could encourage business investment even further by harmonizing Ontario's retail sales taxes with the GST;
• You could strengthen our economy further by reducing inter-provincial trade barriers;
• You could take a long-term view and forego subsidies, bailouts and band aids for business; and
• You could focus on getting the economic fundamentals right.
  

Ontario was once an economic powerhouse that showed all Canadians the way to greater opportunity and greater prosperity. In these times of economic uncertainty, Ontario can regain its rightful place as a leader in our economic union.

But Mr. McGuinty, it is going to take political will. By lowering taxes, by creating a positive business environment, by seizing opportunity, you can help strengthen our economy and make Canada a better place for everyone.

Sincerely,
James M. Flaherty

To see the original letter, click here (pdf)