Manitoba’s tax on jobs stifles growth

Opinion

Hey there, time traveller!
This article was published 26/09/2011 (4203 days ago), so information in it may no longer be current.

There was a time when the payroll tax helped define the ideological divide between Manitoba’s two main political parties, every bit as much as how you balanced the books at the end of the year. But the distinction between the NDP and the Conservatives has blurred as both parties spend taxpayers’ money to win their votes. It has fallen to the Liberal party in this campaign to lay out the cautious spending plan and, as of Thursday, to lift the payroll-tax burden off corporations.

Liberal Leader Jon Gerrard would phase out the payroll tax, called the levy for health and education, starting with colleges and universities. There is a certain irony to the fact the schools pay a tax for education purposes, but doubly so when one realizes it is like government giving with one hand and taking with the other.

Also arguably in the same soup are the federal and municipal governments, which tax citizens to pay the payroll tax. Crown corporations such as Manitoba Hydro and MPI in effect turn it into a tax on ratepayers. In all, public-sector corporations pay 45 per cent, or $169 million, of the $374 million the province took in last year from the tax.

A relatively small number of corporations pay a payroll tax, which is applied to businesses with payrolls of more than $1.25 million. That, essentially, is a business with 25 employees, each paid $50,000. But the levy is a considerable chunk of the taxes corporations pay. A business with a payroll of about $30 million pays $670,000. For publicly traded companies it will be the tax paid provincially.

That puts into some perspective Mr. Gerrard’s promise; it would make a huge difference to many businesses investing — adding jobs — in Manitoba. Gary Filmon leapt into politics because, as a newly minted small-business owner, he discovered he was being taxed on the wages he paid to employees — a tax on jobs, he declared, a ridiculously punitive policy that acted as a disincentive to hire. As premier, Mr. Filmon took the tax off thousands of businesses, gradually raising the payroll exemption to $1 million, which Gary Doer subsequently increased to $1.25 million.

It is intuitive that businesses looking for places to grow would look hard at the costs, and a tax applied directly to their payroll is glaring. Mr. Gerrard says it has chased away business. Three other provinces impose payroll taxes (although Newfoundland’s is lower). Manitoba is alone in Western Canada in taxing payroll.

Mr. Gerrard sides with the Business Council of Manitoba in favouring phasing it out. Setting aside the tax on public-sector corporations, it would mean $205 million lost to provincial revenues, a considerable amount but not when compared to the many hundreds of millions the NDP and the Conservatives are proposing to spend over four years if elected, essentially deficit-financing their promises for a term or longer.

Oddly, payroll-tax removal is not a plank of the Conservative election platform; leader Hugh McFadyen is offering a payroll-tax credit for training of employees. That may encourage upgrading, but not hiring. Mr. Gerrard’s promise is principled and straightforward. It may not resonate with a lot of voters but it is a clear, thoughtful policy that will make Manitoba more attractive to businesses scoping for the best place to expand.