NDP Said to Put 17.5% Cap on Increased Canada Corporate Tax Rate

  • Party to reveal cost of election platform ahead of debate
  • Mulcair wants corporations to `start paying their fair share'

The New Democratic Party proposes to increase Canada’s corporate tax rate by fewer than 2.5 percentage points, while backtracking on a call to raise taxes on capital gains, according to a party official.

The NDP plans to raise Canada’s corporate tax rate to “less than 17.5 percent,” from 15 percent, the official said. The increase will be included in a document released Wednesday detailing how the party will finance its campaign promises. Based on current corporate tax revenue, the new rate could add as much as C$5 billion ($3.8 billion) to company costs as Canada’s economy emerges from six months of contraction.

The move comes as the NDP -- which polls show is the top threat to unseat Prime Minister Stephen Harper in the Oct. 19 election-- moderates its socialist roots under Leader Tom Mulcair. The party also hopes to blunt criticism that its pledges for both new social spending and a balanced budget, made in a bid to form government for the first time, aren’t achievable.

To do so, the NDP will release a full costing of its platform Wednesday afternoon in Ottawa -- a day before leaders debate economic policy in Calgary, the heart of the Canada’s struggling oil patch. The official who detailed the plan Tuesday spoke on condition of anonymity because it hasn’t been revealed publicly.

‘Fair Share’

The NDP won’t propose any change to capital gains taxes, the official said, although the party’s 2013 policy book called for capital gains to be taxed fully as income. In addition to higher corporate taxes, the New Democrats have also called for increased taxes on stock options and cuts to the small-business rate.

“We’re going to make sure that Canada’s largest corporations start paying their fair share,” Mulcair told reporters Tuesday in Lethbridge, Alberta. “It’s going to be a reasonable increase, it’s not going to be a shock to the system.”

Canada’s federal corporate tax rate has dropped steadily in recent decades. It was 28 percent in 2000 under a Liberal government, 21 percent in 2006 when Harper’s Conservatives took power and reached 15 percent in 2012. The combined corporate tax rate -- including provincial levies -- is 26.3 percent, second-lowest among Group of Seven nations, according to data from the Organization for Economic Co-operation and Development.

Mulcair is the only leader of Canada’s three major parties calling for a corporate tax increase and has said his proposed rate would be “below the average of what it was under the Conservatives,” which is 17.5 percent. The NDP official confirmed that but declined to provide further detail ahead of Wednesday’s announcement.

New Revenue

Corporate taxes, including those paid by small businesses whose rate the NDP would cut, generated C$39.4 billion in fiscal 2014. Based on those figures, the proposed higher rate would provide at most about C$5 billion annually in additional revenue, data compiled by Bloomberg show, though the official didn’t offer precise estimates.

The NDP’s policy book, renewed in 2013 but no longer posted on its website, calls for “taxing capital gains at the same rate as salaries or wages.” Canada has a collection of exemptions for capital gains and generally considers only 50 percent of capital gains taxable. Federal government figures show that “partial inclusion” of capital gains as taxable income is equivalent to C$9.7 billion per year in foregone tax revenue. Mulcair is breaking from his party base in not pursuing the issue.

Mulcair’s party has regularly held a thin yet persistent lead in the election campaign. According to the latest national averages compiled by polling aggregator ThreeHundredEight.com, the New Democrats have 31 percent support, with Harper’s Conservatives and Justin Trudeau’s Liberals close behind at 30 percent each.

Social Programs

The NDP is proposing a national program of subsidized childcare, a 20-year transit plan and expanded transfers to municipalities, among other pledges. Both Mulcair and Harper have pledged to deliver a balanced budget, while Trudeau has promised deficit spending to stoke the economy.

Harper and Trudeau, in turn, have attacked Mulcair by saying he won’t be able to fulfill his promises while balancing the budget in his first full year.

”You can’t build a progressive Canada with Mr. Harper’s budget,” Trudeau told reporters Tuesday in Waterloo, Ontario. “Mr. Mulcair for his part doesn’t get it -- he’s promising you can have your cake and eat it too.”

The corporate tax increase is a key pillar of the NDP platform, though an increase in capital gains taxes would also have generated billions. Campaigning Tuesday, Mulcair brushed aside questions about his fiscal plan.

“We’re going to be putting our numbers out there so people know how we’re going to be balancing the budget,” the NDP leader said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE