With the exuberance of an exhaling balloon, the government made a quiet but important announcement this week that appeared both hastily released and absent the communication muscle normally associated with good news stories.
Governments are easy to criticize when announcements are made, even positive announcements. An expected refrain is often, “More could be done.” Criticism is both expected and weightless. In an inflationary environment where wage growth lags expenditures, investment options are endless.
Without dissecting priorities, this is a business column and any announced reduction of business tax is warmly received.
Business tax revenue has experienced unexpected growth in the province. Corporate income tax was $38 million greater than forecast and the economy has been strong thanks to many factors including increasing population, a function which is now under adjustment.
So, like a found $20 bill in a forgotten pocket, the minister of finance had to decide what to do with the surprise benefit. Spreading it between business and personal taxpayers seems a bulletproof consideration. For a mere seven per cent impact to a $75 million budget surplus, it’s modest.
A multi-phase reduction in the tax rate was announced in this year’s 2018 budget, so a reduction needed to be implemented before the next budget. This was both planned and expected. But the tax reduction should never have been a question. The federal government has been progressively reducing the federal corporate tax rate for the last dozen years. P.E.I has maintained the highest small business tax rate in the country and it remains one of the highest; tax relief remains a competitive necessity.
Reaction has been muted, not because a reduction is not welcome, but because it is overdue. We must move from a competitively disadvantaged position to a uniquely strategic position. Balanced and appropriate tax rates are part of this, but business is looking for strategic positioning beyond just a level tax environment. Access to skilled, effective labour, reaching new markets, investing in technology and innovating processes, or simply turning a viable profit to support business owners and their families.
Taxation is a crucial pillar of this equation, to be sure. But, beyond taxation business requires an effective environment on which to flourish. Many business owners can attest that the environment has never been better, and data supports this. Data also indicates that the economy is undergoing a subtle shift — one that is part of an expected and natural cycle. Business needs to be cognizant of this occurrence whether natural or, in this case, induced and respond accordingly.
The planned tax reduction need not be applauded at this time — it was applauded and acknowledged when it was announced. This expected tax relief should be followed with, “Where is the next?” and, “Make us at least competitive with other regions.”
If we are not competitively positioned, tax rates can be an equalizer to transportation and other disproportionate input costs.
I’ll hold my applause for the next round of economic inducers.