Thucydides said:
I think we are looking at the same problem from two different angles:
You say (correctly) that a good balance sheet with accumulated assets can allow a tax cut, and prudent fiscal management is its own reward.
I say (also correctly) that Company "X" is looking for the best ROI, so if Jurisdiction "Y" has a better ROI due to low taxes and regulations, they will tend to go to that jurisdiction. If Jurisdiction "Y" happens to have a poor balance sheet, then they need to attract as many business and investors as possible. Holding onto high rates of taxation to balance the books becomes a loosing proposition when the very business and workers who's tax dollars you need choose to do business outside your jurisdiction.
Remember, Sweden did not choose to lower their tax rates because they have a positive asset balance; they did so to stay competitive with nations like Poland and Ireland (who, so far as I know, do not have a positive balance of assets on their books).
It's not a matter of different angles. You've posted an article then further commented that "We should cut corporate taxes like Sweden" and then "National Debt level have little bearing in that discussion."
I'm saying the exact opposite. That unequivocally, a nation's debt (or accumulated asset) level is the key determining factor in its ability adjust corporate tax rates and that a nation's focus on reducing its debt and that in looking at a global playing field, it will be each nation's debt/accumulated asset which will drive their competitive advantage in future years as those with accumulated surpluses will have an ability to provide identical services to their citizens at significantly lower individual and corporate tax rates.
Let's look at two hypothetical cases.
Both Countries X & Y:
Population 30,000,000
GDP: 1,200,000,000,000 (or $40,000.00 per citizen)
Country X:
National Debt: $600,000,000,000 (or $20,000.00 per citizen)
Debt Servicing: $45,000,000,000 (or $1,500.00 per citizen based on 7.5% interest rate which is a low estimate)
Country Y:
National Surplus: $150,000,000,000 (or $5,000.00 per citizen)
Interest Earnings: $8,250,000,000 (or $275.00 per citizen again based on 5.5% interest rate which again is a low estimate)
The comparison therefore is that on a national basis with identical government service delivery and individual tax rates, Country Y has the ability to reduce corporate taxes by $1,775.00 per citizen without either raising individual tax rates above the level of Country X, nor cutting services below the level of Country X. That number multiplied by 30 million citizens is $53.5 billion in unneeded tax revenues. Putting that into context, Canada currently collects roughly $39,000,000,000.00 billion per annum in corporate taxes (this is from the Fiscal Monitor - July 2008). If Canada therefore were in the position of being Country Y instead of Country X, we could not only eliminate
all our corporate taxes, but could also reduce our personal taxes by an additional $12.5 billion.
The 'lightbulb issue" being Canada is roughly in position of Country X while many of our competitors are in the position of being Country Y (obviously with different populations). And that although you're claiming our debt is inconsequential, it is in fact an albatross that most certainly impedes our ability to compete with those countries who are in the status of Country Y. Specifically, on a globally competitive playing field, should these Country Y states decide to go to a 0% corporate tax rate (which they can afford to do), Canada has little option but to try to match that rate in order to compete for corporate investment due to mobility of capital which leaves us one of three options: i) Increase Individual Taxes, ii) Cut services, or iii) Run Deficits which will only compound the problem. I should add that one solution (raising individual tax rates) creates its own problems as not only in a global world do we face mobility of capital, we face mobility of talent.....and should places like the Persian Gulf offer opportunities at both 0% corporate tax, and 0% individual tax, we run the very real risk of losing some of our best and brightest.....and for the record, don't think for one second that the Country Y's out there aren't in the process of trying to steal not only our corporate offices but also our best talent with their competitive advantage.
Bottom Line: We are not paying too much tax. We are paying too little. Our debt at the very least needs to be eliminated, and at best moved to mild accumulated surplus as otherwise Canada will become a "have not" country by the time our children reach working age.
Welcome to the new reality....
Matthew.
