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Lower business taxes generate jobs: CME

Published by Derek Lothian on January 30, 2013

Lower business tax rates have played an important role in supporting Canada's economic recovery, creating jobs and spurring investment, according to an analysis published today by Canadian Manufacturers & Exporters (CME).

The analysis is based on the close correlation between the profitability of Canadian businesses – measured in terms of after-tax profits as a per cent of gross domestic product (GDP) – and Canada's unemployment rate (see accompanying graph). It shows that every percentage point increase in after-tax profits (as a per cent of GDP) leads to a 0.8 per cent decline in unemployment.

"Corporate tax rate reductions have made businesses more profitable – and that is a good thing," says CME President & CEO, Jayson Myers. "If federal tax rates had not been reduced, Canada's unemployment rate would have exceeded nine per cent in 2009 during the recession. Today, our unemployment rate would be higher than that of the United States, with about 200,000 fewer Canadians working."

Myers points out there are roughly 700,000 more Canadians employed today than at the end of 2007.

Investment, meanwhile, has also increased. Canada's business sector invested $25 billion more in capital assets last year than in 2007, and $50 billion more than at the depth of the recession in 2009. Investment in industrial machinery and equipment, which has been given an additional boost by the rapid depreciation that the federal government has made available to manufacturers, has risen 12 per cent since 2007, and has jumped by 37 per cent since the end of the economic downturn.

"Concerns that businesses are hoarding cash and not investing to improve competiveness or to grow are simply wrong," says Myers. "Businesses are, in fact, holding more cash because they have more short-term liabilities, but they are also investing more in productive assets like construction and engineering, as well as machinery and equipment.

"It's time we get the facts on the table. Business investment has been a key driver of economic and job growth over the past five years, and lower taxes have contributed significantly to that growth."


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