Lower business taxes have played a role in supporting Canada’s economic recovery, creating jobs and spurring investment, according to new data from the Canadian Manufacturers & Exporters (CME) trade association.
Based on a correlation between the profitability of Canadian businesses – measured in terms of after-tax profits as a per cent of gross domestic product (GDP) – and Canada’s unemployment rate, the analysis from the CME shows that every percentage point increase in after-tax profits (as a per cent of GDP) leads to a 0.8 per cent decline in unemployment.
“Corporate tax rate reductions have made businesses more profitable – and that is a good thing,” CME President and CEO Jayson Myers said in a statement. “If federal tax rates had not been reduced, Canada’s unemployment rate would have exceeded nine per cent in 2009 during the recession. Today, our unemployment rate would be higher than that of the United States, with about 200,000 fewer Canadians working.”
Canada’s business sector invested $25-billion more in capital assets last year than in 2007, and $50-billion more than at the depth of the recession in 2009, according to CME. Investment in industrial machinery and equipment, which has been given an additional boost by the rapid depreciation that the federal government has made available to manufacturers, has risen 12 per cent since 2007, and has jumped by 37 per cent since the end of the economic downturn.
“Concerns that businesses are hoarding cash and not investing to improve competitiveness or to grow are simply wrong,” Myers said. “Businesses are, in fact, holding more cash because they have more short-term liabilities, but they are also investing more in productive assets like construction and engineering, as well as machinery and equipment. “It’s time we get the facts on the table. Business investment has been a key driver of economic and job growth over the past five years, and lower taxes have contributed significantly to that growth.”
The Ottawa-based CME is Canada’s largest industry and trade association. It represents businesses in all sectors of manufacturing and exporting activity across Canada, with a mandate is to promote the competitiveness of Canadian manufacturers around the world.