Michigan Governor Rick Snyder said his state is weaning itself off tax breaks for businesses, and he wants the Canadian and Ontario governments to do the same.
“The use of tax incentives by government, in my view, is a terrible thing,” Snyder told a conference on U.S.-Canada relations in Ottawa. “I essentially view it as the equivalent of a heroin drip for government.”
The Canadian government, which has promised to eliminate its budget deficit in the fiscal year starting April 2014, has been looking at the effectiveness of the tax concessions and grants that it offers to businesses to encourage research and development.
Tax incentives for companies are ineffective and often opaque because it is difficult to track who receives them, Snyder said, adding that Michigan is eliminating “virtually all” such measures.
“Do the governments really win by everyone continuing to ratchet up incentives?” Snyder said in an interview with Bloomberg News, saying he wants the Canadian and Ontario governments to follow his state’s lead.
“I would expect with the financial challenges that people have, with people hopefully becoming more fiscally responsible, they’ll see that this just doesn’t make sense,” he said.
Michigan sits next to Canada’s most populous province, and the border crossing at Detroit-Windsor is the busiest in the world’s largest trading relationship.
A Canadian government-appointed panel headed by Open Text Corp. chairman Thomas Jenkins recommended last month that Canada rely less on tax incentives to spur innovation and more on direct financial support for businesses.
Canada spent C$3.5 billion ($3.5 billion) last year on its scientific research and experimental development tax credit, accounting for about 55 percent of the country’s support for business R&D. Canada’s productivity growth averaged 0.6 percent between 2000 and 2009, compared with an 1.5 percent among countries that belong to the Organisation for Economic Co-operation and Development, the Jenkins report said.
Ontario offers a range of tax breaks for businesses, including credits for employers that hire and train apprentices in skilled trades, and an incentive for companies to produce movies and television shows.
Snyder and the Michigan Legislature capped the amount granted under the film tax credit at $25 million for this fiscal year. The state had given a 42 percent refundable tax credit to filmmakers for in-state production costs, with no limit on how much the state could grant.
Canada’s most populous province has made itself a better place to invest by cutting taxes on businesses and adopting a value-added sales tax, said Aly Vitunski, a spokeswoman for Ontario’s finance minister Dwight Duncan, in an e-mail. She declined to respond directly to Snyder’s remarks.
A spokeswoman in Prime Minister Stephen Harper’s office declined to comment.