Rethinking payroll rebates

As far as incentives go, the payroll rebate is probably one of the least risky for taxpayers because it is paid out only after the payroll is actually paid and that means the company only gets their incentive after the economic impact of the payroll spending is already in the system. 

For example, a company might have a $10 million payroll and that might generate $2 million in annual taxes for a provincial government (income, hst, etc.)  A million payroll rebate spread over three years would mean the province would get a $1.67 million/year return on the money they invested ($2 million less the $333k paid out each year) and then in year four the $2 million is all incremental taxes to government.

The Nova Scotia government, it has been reported, is thinking about scrapping the payroll rebate – just, somewhat ironically, as New Brunswick has began to start offering it to clients.

This Newsweek article credits Oklahoma’s payroll rebate program for that state attracting 400,000 new jobs since 1993.

Now they are doubling it for knowledge-based jobs but here’s the catch – the jobs need to average annual salaries of at least $94,000, three times the state average.

It’s a 10% cash back payroll rebate -more lucrative than any I have seen but you could still make the argument (and Oklahoma does) that it is a windfall for the government.

At $94,000/year, through direct and indirect sources (as well as corporate tax), each of these jobs will generate something like $25,000 each year in new state tax revenue.  So the company gets $9,400 back and the state gets $15,600 in new tax revenue – about the same tax revenue as a job at $50,000 year and far more than what the average employed person pays now in tax to the state (from all sources).

This stuff creeps out a lot of people because they detest this kind of competing for jobs with taxpayer money but, folks, everyone – just about – is doing it.  Ontario, BC, Quebec, PEI and NS are doing this with multimedia jobs, Alberta for film production (and very lucrative tax/royalty incentives for oil and gas E&P), New Brunswick is not sector specific but there are programs.

In the end, I am not necessarily advocating for this tool or any specific tool because it will depend on what industries you are trying to foster in your province. For some it might be cheap energy, for others capital cost tax incentives, for others access to infrastructure.

But this one is a particularly instructive example.

This entry was posted in Uncategorized. Bookmark the permalink.