Will tax cuts help the tech sector?

The federal government’s budget for this year proposes to reduce corporate income tax to 15 per cent by 2012, but broadband Internet is a better way to help companies in Canada compete, a New Democrat MP complains.

“What is needed to help business is investment in areas like infrastructure or expanding broadband capabilities,” said Charlie Angus, the New Democratic Party’s Member of Parliament for Timmins-James Bay and a member of the House of Commons industry, science and technology committee. “A tax cut never built a road or fixed a sewer.”

Angus made his comments in an e-mail responding to questions from Network World Canada magazine.

In its budget tabled on Jan. 27, the ruling conservatives reduced the general corporate income tax rate to 19 per cent as of Jan. 1. It also plans to go ahead with previous legislation reducing corporate income taxes to 15 per cent by 2012. This compares to a tax rate of 22.12 per cent in 2007.

Though fiscal conservatives often cite corporate taxes as a major reason companies will decide whether or not to build factories or offices in a given country, no tech firms contacted by Network World Canada have said the corporate tax cuts would change their plans. They did not say the tax cuts would not change their plans, either.

Tandberg SA, a Norwegian video hardware vendor with offices in Canada, declined to comment. Officials from Cisco Systems Canada Co. in Toronto and Mitel Networks Inc. of Ottawa were not available to comment at press time.

But a spokesperson for a conservative lobby group speculates tax cuts will help the tech sector.

“The most damaging tax for economic growth is the corporate tax,” said Glenn Smith, director of marketing for the Toronto-based National Citizens Coalition. “Always any corporate tax reduction is good for attracting business to Canada.”

The NCC criticized the government for budgeting a deficit. If everything goes according to plan, the feds will spend at least $80 billion more than they take in over the next four years.

The budget includes $500 million to Canada Health Infoway to “encourage” more use of electronic health records, and $225 million over three years to “develop and implement a strategy on extending broadband coverage to unserved communities.” It also budgets $50 million for the Institute for Quantum Computing and gives a tax break to companies buying hardware and software.

“In terms of broadband infrastructure, the government has made a commitment for some money, but it will not nearly address the fact that we are continuing to fall behind in terms of access and competitiveness with other countries,” Angus wrote.

As for the tax reduction, Smith believes this will help companies in Canada compete.

“This reduction (to 15 per cent) in corporate income tax in Canada will actually be the lowest in G7 by 2012 which is good,” Smith said. “It will put us at an advantage over the United States. It’s a global market so if we want to attract corporations we have to offer something of benefit.”

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