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A Toxic Mix: Minimum wage and business tax cuts

February 26, 2014

2-minute read

Yesterday, Ontario’s NDP announced an election plank: increase the minimum wage, and at the same time, cut taxes for small business.

The gist of their proposal:

a) a 33% tax cut for small businesses and

b) a 56 cent minimum wage increase over and above what the current government has already committed

I have no squabble with the minimum wage increase. Sure, I wish it were higher, as we proposed to the Minimum Wage Advisory Panel back in November. The problem comes when a wage increase is coupled with a tax cut. This sets an extremely dangerous precedent. It buys into the rhetoric that minimum wage increases are bad for business and governments need to mitigate the damage.

There is no clear-cut evidence that minimum wage increases hurt small business. Meanwhile there is growing evidence that higher wages are actually a net benefit to business and to the economy. They promote increased innovation, productivity and efficiency in the use of other resources.  Higher wages foster loyalty among employees and employers, reduce staff turnover and lower training costs.

Meanwhile, cutting taxes means less revenue to invest in transit, in infrastructure and in high quality public services. Less money for social housing. Less revenue for social investments that will be on offer during the next election.

A number of my colleagues at the CCPA recently contributed to the book  “Tax is Not a Four Letter Word.” They did this because they share a sense of urgency, a desire to change how we in Canada think and talk about taxes, and how legislators approach revenue raising tools. Their message? Taxes are about what is possible, about what we want to do together. When we cut taxes we stifle the public imagination about what we can build, create and solve together.

Not to mention, we’ve already cut small business taxes. All businesses, small ones included, were the recipients of federal in 2010, 2011 and 2012 and provincial tax cuts in 2010 and 2011.  At the time, policy makers predicted lower taxes would increase business investment – and lead to more jobs and higher wages.  In reality this hasn’t come to pass.  Instead, a significant number of businesses made the decision to either pay those savings out as dividends or keep it as cash on hand.

To be clear: we are in support of a higher minimum wage.  A higher minimum wage will be good for workers, business and the economy. This announcement is misguided despite the increase, for two simple reasons. For one, it buys into the myth that “minimum wage increases hurt small business.” And it further contributes to the erosion of our revenue base ­– a revenue base we need in order to offer the public services that we all rely on, many of which are desperately in need of re-investment.

Kaylie Tiessen is an economist with the Canadian Centre for Policy Alternatives’ Ontario Office (CCPA Ontario). Follow her on Twitter @kaylietiessen

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