(The following article is from the June 1-15, 2008, issue of People's Voice, Canada's leading communist newspaper. Articles can be reprinted free if the source is credited. Subscription rates in Canada: $25/year, or $12 low income rate; for U.S. readers - $25 US per year; other overseas readers - $25 US or $35 CDN per year. Send to: People's Voice, c/o PV Business Manager, 133 Herkimer St., Unit 502, Hamilton, ON, L8P 2H3.)

PV Vancouver Bureau

The Harper government's proposed corporate tax cuts will widen the regional and industrial inequalities in Canada's economy, says a new study released by the Canadian Centre for Policy Alternatives (CCPA).

     The study, by economist Jim Stanford, analyzes the distribution of corporate profits across provinces and 16 major industries. It finds that the big winners from corporate tax cuts will be oil-producing provinces, and the oil and finance sectors. Industries and regions which are struggling will receive very little benefit.

     The Tories plan to reduce corporate income tax rates over the coming four years by almost one-third. The statutory rate will fall by over 7 percentage points, from 22.12% in 2007 (including the federal corporate surtax) to 15% by 2012. Finance Canada estimates these cuts will reduce federal revenues by just under $15 billion per year (or about $450 per year per Canadian) once fully phased-in. The corporate tax cuts will reduce the federal government's total revenue base by about 6%, at a time when federal deficits may be looming again.

     "Despite what Finance Minister Flaherty says, corporate tax cuts are an especially uneven policy tool," Stanford says. "These corporate tax cuts constitute a significant net fiscal shift in favour of Alberta, and away from Ontario and every other non-oil-producing province."

     According to the study, the oil-producing provinces of Newfoundland & Labrador, Alberta, and Saskatchewan, which account for 15% of the population, generate 36% of corporate profits, will reap a large share of the benefits of corporate tax reductions. On a per capita basis, companies operating in these provinces can be expected to receive three times as much benefit from the tax cuts as companies in the rest of the country.

     The share of profits already amounts to 32% of GDP in Newfoundland's case, and 22% for Alberta and Saskatchewan, reflecting the unique profitability of the petroleum industry. Across the oil-producing provinces, before-tax corporate profits average 23% of GDP.

     For Canada as a whole, before-tax corporate profits accounted for 13.7% of GDP in 2006 (a record high share). In non-oil-producing provinces, however, the profit share averages 11.2% of GDP, ranging from a low of 9.2% in Nova Scotia to 12.7% in Manitoba.

     The three oil-rich provinces already enjoy higher economic growth, thanks to the surge in global oil prices and industry profits and investment activity. In Newfoundland and Alberta, before-tax corporate profits equal almost $16,000 per resident. Saskatchewan generates over $10,000 per resident.

     (While Stanford's study does not examine the living standards and working conditions of workers in these provinces, readers should remember that the benefits flowing to the corporations do not trickle down to much of the population. Housing costs are sky-high, for example, and social programs remain badly underfunded in the oil-rich provinces. Hundreds of thousands of workers are forced to survive on wages at or near the minimum, despite the high cost of living.)

     In the non-oil-producing provinces, on the other hand, before-tax corporate profits average $4500 per capita, less than one-third the levels in oil-producing provinces.

     Stanford's study reports that before-tax profits equal almost 20% of the petroleum industry's total sales. In 2006 (when the data was assembled) this equaled over $300,000 for every employee in the industry, and undoubtedly more since then. Profits per worker in the oil and gas industry are 17 times higher than in the Canadian economy as a whole (just over $18,000 per worker).

     The finance sector is the second most profitable industry, with before-tax profits exceeding 20% of operating revenues, or more than $100,000 per employed worker, five times higher than the Canadian average. Three other industries also enjoy high profit levels: mining, utilities, and real estate. Together these five sectors (concentrated in resources and finance) accounted for over 45% of all before-tax corporate profits in 2006, reporting average profits per worker of $107,000.

     All other industries in Canada, on the other hand, reported profits per worker of just $10,800, or one-tenth as high as the super-profitable resource and finance sectors.

     Measured as a share of industry revenues, profits in Canada's hard-hit manufacturing sector equal just 6.59% of revenues in 2006 (and probably lower now, given the challenging economic conditions facing Canadian manufacturing). Profits are even lower for a range of economically important service industries.

     "Finance Minister Flaherty is `picking winners' as surely as any other Finance Minister - including Ontario's," says Stanford. "Surprisingly, the `winners' he's picking are the provinces and industries that are already doing very well indeed."

     The study also questions the economic impact of corporate tax cuts. Despite the dramatic decline in corporate tax rates this decade, business spending on capital equipment and R&D has been remarkably sluggish.

     (Picking Winners: The Distorting Effects of Federal Corporate Tax Cuts, is available on the CCPA web site at http://www.policyalternatives.ca.)