Opinion: Ontario’s progressive corporate tax rates are paying off

It was little more than two years ago that Ontario’s Progressive Conservative government presented a proposal for an increase in the province’s minimum wage to $15 an hour by 2019, paid for entirely with…

Opinion: Ontario’s progressive corporate tax rates are paying off

It was little more than two years ago that Ontario’s Progressive Conservative government presented a proposal for an increase in the province’s minimum wage to $15 an hour by 2019, paid for entirely with a cut to corporate tax rates. Much to everyone’s surprise, it passed unanimously in that general election campaign. In office, the Liberal government rejected the idea, which Ontarians have long supported, and Governor General David Johnston signed the Ontario Act of 2015 into law on Oct. 17, 2016. That second bill, underlined in bold red in today’s editorial, raises the minimum wage to $14 an hour at the beginning of next year, followed by increases that will ensure the minimum wage increases with inflation from $14 to $15 in three increments in July and November, Dec. 1, and Jan. 1.

The minimum wage in Ontario is now about 60 percent higher than it was in 1996, based on inflation, and much higher than the current federal minimum wage. According to a study that Canada’s federal government commissioned of low-wage work in Canada, the figure could reach $20 an hour by 2021 — more than three times the federal minimum wage. The minimum wage is a steeply progressive piece of legislation, adding in a tax credit of up to $1,000 that reduces the effective tax rate for minimum wage workers in Ontario to less than one-third of the federal tax rate.

There is no reason to suppose that people at the lowest rungs of the Canadian wage ladder have been treated merely marginally better, or rather to separate so-called low-income Canadians, who would already be workers at the $15 minimum wage, from the rest of the country’s low-wage workers.

Yet Ontario’s higher minimum wage is now being resisted by business groups as a threat to the country’s economic recovery, which it is not, and a cost that is likely to be passed on to consumers. This would be a shame. The annual shortfall in minimum wage workers in Ontario of roughly 600,000 people is more than a national union can absorb, and a substantial number of these jobs would most probably go vacant if that rate of growth were sustained. When these places fail to employ the 500,000 people they could, the result will be economic growth at one end and higher prices and unemployment at the other.

Even raising the minimum wage of $14 from $11.40 to $14 is not chump change, by the way. That’s the same as the value of a decent home, or several high-quality electronics, two nights in a decent hotel or a really good meal for two. Or five new backpacks for a family, many of which might otherwise stay home and spend time on the Internet with addictive games like Minecraft.

In any event, raising the minimum wage would not be effective if the beneficiaries of that higher wage — indeed, a significant number of the most disaffected young people in Ontario — did not see their actual incomes rise, which they will. One study comparing pay increases between European states found that an increase in the minimum wage at the middle of the income distribution did not result in an increase in wages at the end of the distribution — but, rather, in wages, and especially for low-wage, highly skilled, white-collar workers. Much the same occurred in Ontario’s lower sections, where it would take a greater effort to increase disposable income, but gains can be more easily made.

Raising the minimum wage is a democratic initiative and just, requiring very little in the way of economic planning. Businesses do not always seek to engage in anti-competitive behavior, and public policies should be conceived to encourage employment rather than incentivize disinvestment. Ontario’s progressive corporate tax rates have contributed significantly to that province’s economic success over the last several decades, and should also be seen as a wise investment for citizens.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at [email protected]

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