NBT is taxing my patience :-)

NBT has challenged my number crunching credibility and statements around this tax issue. Therefore, I have thrown down the gauntlet and taken up his challenge. I challenge you to a duel, sir :-). I wasted a whole 1.5 hours on this.

Okay, the following table shows how you calculate provincial corporate taxable income. It is based on a combination of wages and revenues in each province. The table is taken from this CRA form.

Our model is pretty typical. It shows a company with $20 million in sales and $2 million in annual profits. It’s revenue is distributed nationally by population and its costs are primarily in Ontario 80% of all wages. You will see that under this scenario, taxable income in New Brunswick is $30,000 and in Ontario $1.2 million.

Then, assume Scenario B where $4 million of the wages paid in Ontario are moved to New Brunswick. Let’s assume the manufacturing activity was moved to NB to take advantage of the zero corporate income tax rate put on by the government. You can see the taxable income calculation.

The following table shows the corporate income tax rates (2008) for each of the provinces for a facility this size and what they would pay in Scenario A.

This table shows the new corporate income taxes paid after moving the $4 million in payroll to New Brunswick:

In other words, the company reduced its corporate income taxes payable in Ontario by $48,000. You add to that the $4,000 they would have paid in NB under Scenario A and they have reduced their overall taxes paid by 2.6%. To put it another way, the company’s overall costs (including taxes) would be reduced by less than one percent by moving their entire manufacturing operation to New Brunswick.

The same thing holds if we scale it up to a $200 million or a $2 billion company. The ratios hold. They would be saving a few points off their total tax bill and less than a percentage point off their entire cost structure by New Brunswick zeroing out its corporate income tax rate.

Now, I am not saying that lowering corporate income tax means nothing. It means something but it is a relatively limited cost item in the overall picture.

Companies will invest in New Brunswick if its overall cost structure is competitive; if its R&D environment is attractive, if there is a good labour pool for now and the future, if transportation infrastructure and cost is competitive, etc. etc. etc.

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0 Responses to NBT is taxing my patience :-)

  1. Dan F says:

    “Let’s assume the manufacturing activity was moved to NB to take advantage of the zero corporate income tax rate put on by the government.”

    What did your high school teachers tell you about making assumptions?

    We all know how well the Bushite tax cuts worked out for their economy – what makes you think it would be any different here?

    It’s sad that so many have fallen for the Irving propaganda.

    What’ll really happen is some years from now, we’ll all wake up with massive headaches fuelled by binging on fiat debt with nothing but a bunch of buildings to heat to show for it.

    Meanwhile, Bilderberg McKenna and his banker buddies will all have their Bermudan beach houses paid for on the assumptions of hard working Maritimers and immigrants who just wanted a taste of the Canadian dream.

  2. mikel says:

    I’ll be honest, I couldn’t actually follow that data, even though I tried. Keep in mind that ‘hypotheticals’ only go so far. For example, a pulp mill is a ‘manufacturing facility’ yet rarely does a pulp mill pay ANY corporate income tax. You can go to the financial report of the Edmunston mill and see the history.

    The ‘assumption’ is that corporations pay much tax at all. That’s something we don’t know. It’s no coincidence that in the past the chief demand of labour was always simply to get the government and industry to ‘open the books’.

    According to Mr. Murell, of the 350 million corporations pay, only about 150 million of that comes from exporters. That means Irving, McCain, some forestry products and some service providers only contribute less than 1% of the budget of a province where their business activity represents, well, your the statistician, how much of the economy?

    Everybody but NBT KNOWS this, study after study, and even corporate executives have been saying this for years. You’ll notice that like other ‘consultations’ hardly any citizens are even taking part (notice also that unlike EFI they don’t post comments with the recommendations). But like I said, you can’t argue against something that is part of the package you are proposing as a model to get multinational investment.

    You are forgetting one thing-not EVERY company is a company moving from ontario. Some will be international companies LOOKING to start out, and so will see that NB is X dollars cheaper than ontario.

    Whether that’s enough to outweigh labour issues we don’t know. Obviously thats’ a miniscule amount, but for an auto plant the numbers will be much bigger-even though the ratio is the same. But again, that’s assuming that NB WOULDN”T offer a CIT ‘holiday’ in the first place, which is a pretty big assumption considering the blessed handouts given to Irving and Sask Potash all for a few jobs.

    But again, go read virtually any business publication from the states. I read a poll in a book a short time ago that said that THE most important consideration given to location is simply where the CEO will live. Auto plants may make big news in the ED world, but the majority of new job creation is NOT from those giants, they are from smaller companies. Oregon has never ranked high on any ‘corporation friendly’ list, but has that big high tech sector packed up and moved? What about California and New York?

    EVERY time they’ve lowered the CIT they’ve said it would mean ‘more investment’. There HAS been more investment, but when you look at what investment there has been,its pretty clear its had nothing to do with taxes. Saskatchewan Potash may pay ‘royalties’, but do they pay taxes in NB? It would be interesting to know how much.