Tax breaks for the old economy

Mar 29, 2015
miltons ip

Let’s make it hard for new-economy companies ! Let’s favour dinosaur businesses !

That is the basic premise of our corporate income tax system.

For instance, it is a fundamental tenet of Canadian corporate tax that “manufacturers and processors” pay less tax per dollar of profit than service companies. This ridiculous situation is based on the “last century thinking” that manufacturers and processors create value, and service providers do not. In 2015, this is absolutely wrong. Service companies create value, and in the 21st century, the most important creators of value are companies that offer dramatic improvements to services by offering either new services, or new more efficient ways of delivering old services.

As I have argued many times before, Canada has particular strength in natural resources, but most importantly, it has strength in key service sectors that are essential for natural resource business – such as raising money. The Ring of Fire might be an important mining and economic development project for northern Ontario – but raising money for the Ring of Fire, and every other mining project of note around the world, is hugely important to the economy of Toronto and thus by extension the economy of Canada. In fact, by far the most important and value-added jobs that the Ring of Fire creates will be in services, ranging from ‘negotiation on behalf of and with aboriginal stakeholders’, to ‘lawyers, accountants and investment bankers’. Even the mechanics who service equipment at the mine are service providers – the number of jobs in the ‘digging trade’ are small, and they are some of the least well paid in the entire mining ecosystem.

Giving tax breaks for ‘manufacturers and processors’ is a stupid and unfair relic of the past.