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2011 business tax cut blows hole in Liberal platform

OTTAWA - Come Jan. 1, federal Liberals will face a gaping $1.8-billion hole in their election platform.

OTTAWA - Come Jan. 1, federal Liberals will face a gaping $1.8-billion hole in their election platform.

That's because the new year will ring in a 1.5 percentage point cut in the corporate tax rate.

The imminent reduction has Liberal strategists wrestling with how best to make up the resulting loss of tax revenue, which the party has been counting on to pay for leader Michael Ignatieff's promises to invest in things like child care and homecare.

"It's a difficult one," concedes one insider.

None of the options are particularly palatable: squeeze Ignatieff's already highly constrained spending commitments; promise to roll back the tax cut; chop spending, or hike taxes elsewhere.

No decision has been made yet but insiders suggest Ignatieff will most likely opt to roll back the corporate tax reduction — even though that would hand the Tories evidence for their claims that the Liberals would form a "tax-and-spend" government and hike taxes.

It's a label Ignatieff sought to avoid last March when he announced he would freeze corporate taxes at their current level of 18 per cent, indefinitely deferring plans to cut the rate to 16.5 per cent in 2011 and to 15 per cent the following year.

Liberals estimated the freeze would ultimately save $5-6 billion annually. Ignatieff vowed to use the savings to pare the record $54 billion deficit while simultaneously investing strategically in measures to help the country cope with an aging population, shrinking workforce and soaring health care costs.

Prime Minister Stephen Harper's Conservatives immediately stuck the "tax-and-spend" label on Ignatieff, charging he would raise "job-killing business taxes."

At the time, Liberals were able to counter they were simply refusing to cut them any further.

But that argument won't wash after Jan. 1 when the next phase of scheduled corporate tax reductions — worth $1.8 billion, according to the Finance Department — goes into effect.

"That's what we're grappling with right now," says the insider.

Indeed, some Tory strategists privately wonder whether the Liberals might not find some excuse to pull the plug on Harper's minority government before the new year, strictly to avoid having to deal with the issue.

Liberals scoff at that idea.

"We're not the ones who are sabre-rattling right now," Liberal finance critic Scott Brison said in an interview.

Some senior Liberals contend that vowing to roll back the corporate tax cut might actually help Ignatieff, who's been trying to position himself as the leader most in tune with the priorities of hardpressed middle-class families.

"Guess what? Every time some big moneybags kicks up a fuss, it's going to prove to John and Jane Q. Public that we're actually on their side," says one senior Grit of the potential backlash among business leaders.

Liberals point to the fact that Dalton McGuinty's newly elected Ontario government rolled back corporate tax cuts in 2003 with little political damage, despite having promised during the campaign not to raise taxes.

Brison noted that Finance Minister Jim Flaherty was part of the former Tory government in Ontario which left a surprise $5.6 billion deficit, precipitating McGuinty's tax rollback. He appeared to hint strongly that Ignatieff will opt for a similar rollback, for much the same reason.

"We expect that the numbers will be worse than the Conservatives are projecting when it comes to deficits, in the same way that they did in Ontario," Brison said.

"And ultimately that will impose on us a focus on deficit reduction as a priority over corporate tax cuts."

 
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