London Community News
By Les Whittington/Ottawa Bureau
The build-up of corporate cash that Bank of Canada Governor Mark Carney called “dead money” has hit more than $500 billion, says a report by labour economists that urges Ottawa to revise its business tax-cutting strategy.
“Rather than investing the windfall from their tax cuts to create jobs, Canada’s largest non-financial corporations are hoarding cash and paying fat compensation to their CEOs,” says the Canadian Labour Congress in a press release accompanying the study.
Corporate income tax cuts by recent Liberal governments and the Harper Conservatives have failed to have the desired effect of prompting economic growth, the study concludes.
“Proponents of ever lower corporate taxes argued that the money corporations saved from lower taxes would be reinvested in real assets such as new factories, new machinery and equipment, and training, thus boosting economic growth and productivity, and helping create more and better jobs,” the study said.
“However, this is not what has happened. Real investment has languished while profitable corporations have been paying out much more in dividends to shareholders and accumulating more financial assets.”
CLC Secretary-Treasurer Hassan Yussuff said the taxes being paid by business have steadily declined in recent decades.
“Corporate income taxes amounted to only 8.3 per cent of all government revenues in 2011, down from 8.8 per cent in 2010 and from an average of 11 per cent in the 1960s and ’70s,” he said.
“In return for tax breaks, companies are supposed to be investing their windfall to create good jobs in Canada but instead they are hoarding cash.”
In the past few years, Carney and Finance Minister Jim Flaherty have both urged corporations to increase investments to boost the economy and improve Canada’s long-term manufacturing efficiency. They have said this is particularly important at a time when consumers are maxed out and governments are reducing spending to curb budget deficits.
The CLC study says that between 2001 and 2011 the total cash reserves of Canada’s largest non-financial private corporations grew from $187 billion to $575 billion.
The union says the government should tie tax breaks to investment and job-creation records of specific corporations.
Business has strongly objected to the “dead money” criticism, saying that companies are investing significantly in the Canadian economy and that the uncertainty created by the lingering recessionary conditions from the 2008-09 global downturn has caused executives to be cautious about large investment decisions.
- Torstar News Service