Thursday, December 2, 2010

Business Tax in Manitoba

The Manitoba government has been trumpeting the ending of the small business tax. In 1999, it was the second highest in Canada at 8%. Now it is the lowest.

Before the NDP government starts slapping its own back in congratulatory celebration, we have to think about where the government is going to get the $9.5 million that is the resulting shortfall. Does it mean an increase in other taxes for Manitobans? Is a tax cut really a tax cut if it is re-distributed to other taxpayers?

At the moment, Manitobans pay twice as much personal income tax as Ontario does. This has been identified time and time again by businesses, including small businesses as an impediment to business.

However, the biggest impediment to larger businesses since 1982 has been the payroll tax. If Manitoba hopes to attract head offices and large employers, the payroll tax has got to be reduced. Small businesses that benefit from the cut in the small business tax won't get to be big businesses that stay in Manitoba if the tax acts a job killer later on.

So what can the government do to cut the tax while not going into deficit? I think that the government has to get a handle on spending.

Greg Selinger doesn't seem to want to do that though in advance of an election. There are still some large spending announcements being made even today.

I have one idea to make up for the cut in the small business tax. Raise tobacco prices by another 2 cents per cigarette and it raises $18 million a year in Manitoba. This pays for the small business tax cut. Use the rest to apply to the deficit.

This is small potatoes compared to a $500 million deficit annually. However, the NDP government has to do something to pay for the promises they have made. They can increase other taxes or cut. It is unlikely that a big boom will bring in huge amounts of windfall revenues.

As far as cuts go, the government has no choice but reduce the size of the provincial civil service employee base, look at salaries and restrain or eliminate program spending.

It is a conundrum for the government to be sure. Sadly, in the last few years the The NDP seemed content to benefit from increased transfer payments while not addressing some of the issues of a large government and a weaker by comparison business community.

The tax discrepancy is only getting bigger and after more than 10 years in government, the NDP can do little but shrug and approve ever more spending. It can't and won't last.

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