Disclaimer: I am not an economist or an expert in any field. This is purely an opinionated piece.
Manufacturing has been the heart and soul of Ontario’s economy for years. It has been the catalyst for the wealth and prosperity of this province but has come under fire as manufacturers move away to find cheaper workers and bigger profits. The recession of 2008 emphasized the issue and pressed fast forward on the reduction of our manufacturing base. In order for Ontario to regain the title of ‘have’ province and regain the prestige it has lost we need to do something drastic. We need to make Ontario a place where companies will flock too and invest their money. I believe that having a tiered tax plan will positively impact the way that business in Ontario succeed. Along with other regulation changes, promotional changes and tax benefits we could again become the mecca of manufacturing. Taxes are a necessity for the continued operation of governments and the services they provide but they are a drain on workers, companies and a deterrent to potential investment. I believe that if we tiered our tax system to support the businesses that are invested in Ontario we can offset any negatives that these changes bring.
The new system would be a 3 tiered based on geographical location of the production facility. The first level would be Ontario, 2nd would be North America (Minus Mexico) and 3rd would be international. Ontario HST currently sits at 13% with 8% being the provincial portion of that tax. For companies who produce in Ontario and sell the product in Ontario the tax would be reduced to 9% HST with 4% going to the province. This would be the first portion of the new tiered plan; the reduction in sales tax would allow for items made and sold in Ontario to be cheaper for consumers. A dedicated promotion of Ontario made goods would allows consumers to easily know when the item qualifies for the reduced tax. This would make the things we build here in Ontario much more attractive and help to increase the sales of Ontario businesses. Tax breaks for companies that upgrade factories, upgrade machinery and hire new workers would also be available to companies who decide to build in Ontario. While the reduction in tax income and tax breaks might hurt in the short term; the increase in business for companies and the incentives to hire in Ontario will offset the loses.
The North American tax rate would sit at 12% with a 7% provincial portion. This would still allow companies who are manufacturing in North America to see some extra benefit in the largest province in Canada. The importance of allowing companies who produce and manufacture in North America to see a benefit is substantial. In the global economy positive announcements from neighbours can almost be just as beneficial as announcements inside your own territory. The biggest effect the tax reduction would likely have is an increase in domestically produced automobiles as less taxes make them more affordable. There could be a case made that would allow a even bigger reduction for companies situated in Canada. This reduction would affect the income of taxes to the government but would made up by the addition of the higher international tax bracket. Allowing companies who produce in Ontario or in North America to have a cheaper tax bracket would provide an incentive for companies and could be the push companies need to return.
The international tax rate would sit at 16% or 11% Provincial HST. Making this more expensive would push consumers to look at purchasing more items made here in North America or Ontario. Since many products are produced outside of our borders and would likely continue for the short-mid term this could help to pay for the reduced tax brackets and investment breaks. One of the biggest benefits of increasing the tax rate for international companies would be the return of the high tech manufacturing jobs. BlackBerry (previously RIM) ditched a Canadian company in its restructuring to focus its production from companies in Malaya. An increased cost to the company could help to restructure the deal once again to have those products produced here in Canada. This could also help to rebuild the aerospace, transportation and general manufacturing sectors which have been decimated by the influx of cheap Chinese materials flowing onto the market. Stemming the tide of jobs going to cheaper countries while leaving huge portions of our population underemployed or looking for work will be important into the future. Its time we become a little more selfish and start looking out for number 1.
Even if these changes go into effect it wont be nearly as effective without changes from the way governments do business. We need to look at red tape and cut the stuff that doesn’t make sense anymore. We need to cut the bloated bureaucracy and make sure that our government meets the needs of the people and the companies looking to set up business. We need to make sure that we are providing the best business environment for companies and providing a high standard of living for people. Getting people out of poverty and reducing the debt will continue to be important priorities for government. Now I am not sure if this would be something that could actually work do to trade agreements and other agreements but it could be something to rebuild the decimated manufacturing sector in Ontario. We need to do something to get the hundreds of shutters plants back up and running.