Preamble: Manitoba’s Payroll Tax is paid by employers with a permanent establishment in Manitoba.  Payrolls of between $1.25 Million and $2.5 Million pay 4.3% on the amount in excess of $1 Million and payrolls over $2.5 Million pay 2.15% of the total payroll (the first $1 Million is not a deduction).

Manitoba continues to have one of the highest employer payroll rates in the country and is the only Western province to maintain this tax.

Resolution: That the Government of Manitoba commit to a series of annual reductions in the payroll tax, through a variety of increases in the exemption level and decreases to the rates, with the ultimate goal of eliminating this tax by 2013.

Resolution Report:  

MCC Advocacy (additions since last report are in italics):

May 21, 2008: An MCC ‘Inside the Chamber’ Web Story entitled “IT HAPPENED AT THE AGM: PART 3 – MCC Announces Resolutions For 2008-2009″ provided access to each and every Resolution passed at the AGM. Notice of this story was circulated through the MCC e-Omnibus which is sent to all MCC members, Media and Government.

June 4, 2008: For the first time ever the MCC made available its handbook on ‘Policies & Resolutions’ which contains Resolutions in one handy format. An MCC ‘Inside the Chamber’ Web Story entitled “MCC Releases Policy Handbook” announced this initiative. Notice of this story was circulated through the MCC e-Omnibus which is sent to all MCC members, Media and Government.

June 6, 2008: Resolution books were sent to every MLA and every Member of Parliament that hails from Manitoba. The following had this Resolution specifically drawn to their attention with a detailed letter setting out the background to this issue, Government initiatives (where applicable), and an argument for the Resolution:

• Premier
• Minister of Finance
• Minister of Competitiveness, Training & Trade

August 19, 2008: Corresponded with the Conference Board of Canada in relation to this matter.

October 2, 2008: Wrote to the sponsoring chambering in relation to this matter.

October 8, 2008: Sent a follow-up letter to the Minister of Finance in partial response to his correspondence. We pointed out that while his response focused in the past, the Resolution actually focuses on the future – namely, the suggestion that any future tax relief plan must include a commitment to eliminate the Payroll Tax. 

October 20, 2008: The 2008 third quarter edition of the Focus mentioned this Resolution in its report on the MCC AGM. The Focus magazine goes out to 10,000 businesses and community leaders across Manitoba. 

November 20, 2008: Conducted six media interviews after the Throne Speech, mentioning that the government should have announced a commitment to eliminate the Payroll Tax.

November 22, 2008: An MCCTV video entitled “Throne Speech Part 2″ reiterated the MCC’s call for the elimination of the Payroll Tax. Notice of this video was circulated through the MCC e-Omnibus which is sent to all MCC members, Media and Government.

November 25, 2008: During the Minister of Finance’s edition of the MCC Speaers Series he was specifically asked about moving on the Payroll Tax. He replied buy justifying the government’s focus on the Capital Tax.  A video of the Minister’s answer was put on MCCTV and notice of this video was circulated through the MCC e-Omnibus which is sent to all MCC members, Media and Government.

December 3, 2008: A web story covering the Minister of Finance’s edition of the MCC Speaker Series highlighted this Resolution. Notice of this story was circulated through the MCC e-Omnibus which is sent to all MCC members, Media and Government.

February 26, 2009: This Resolution was featured in the MCC’s Pre-Budget submission to the Government of Manitoba. The submission was posted on the MCC website and was circulated through the MCC e-Omnibus which is sent to all MCC members, Media and Government. 

Developments (additions since last report are in italics):

September 30, 2008: The Minister of Finance wrote to the Manitoba Chambers as follows:

The [MCC's] Pre-Budget Submission acknowledges that our Government has delivered tax reductions totalling $879 million annually. New tax reductions announced in Budget 2008 will save Manitoba families, individuals and businesses another $182 million annually, bringing total tax savings to more than $1 billion annually by 2009. This includes $678 million annually in personal income tax and property tax savings and business tax reductions which total $361 million annually. 

The [Pre-Budget] Submission asked us to fast-track the elimination of the capital tax. As you are now aware, Budget 2008 confirmed that this tax will be eliminated for general corporations by the end of 2010. As well, the elimination of this tax for manufacturers and processors was advanced to July 1, 2008 to help this sector adjust to the challenges posed by the strong Canadian dollar and overseas competition, saving these companies $25 million a year compared to 2007.

In addition to the phase-out of the capital tax, business is also benefiting from the reduction in the general Corporation Income Tax rate from 17% to 12% (and an eventual 11%), the reduction in the small business rate from 8.5% to 1%, a 25% increase in the payroll tax threshold, the introduction of several new tax credits for business, and significant enhancements to existing tax credits for R&D and manufacturing investment.

Reductions in personal income taxes, including the Tuition Fee Income Tax Rebate, improve the ability of Manitoba businesses to compete for skilled talent.

To appreciate the importance of these business tax reductions, consider that between 1999 and 2006 (the latest year for which final numbers are available), corporate taxable income in Manitoba increased by 50% or $1.2 billion, and yet net corporation income tax increased by only $18 million – a 5.5% increase. Virtually all of the $1.2 billion increase in income was retained in the hands of business, and this does not even include the savings in capital tax and payroll tax.

Although your submission acknowledges that we are eliminating the capital tax, I am not sure that everyone appreciates the magnitude of this change. Before Manitoba started cutting the capital tax, private sector, non-bank business paid payroll and capital tax worth a combined total of about $240 million. As both taxes are sometimes described as profit insensitive, it makes sense to consider them together. Eliminating $100 million of capital tax amounts to a 40% reduction in the combined tax. By any standard, a 40% reduction is very huge.

While it is often suggested that most other provinces do not have payroll taxes, three provinces – BC, Ontario and Quebec – charge substantial health care premiums. These are often paid wholly or partly by employers. Ontario levies both a payroll tax and health care premiums. Furthermore, employer-paid payroll taxes or their equivalent – including social security contributions and health care insurance – are generally quite a bit higher in the US than they are in Canada.

Of course, Manitoba did reduce the payroll tax in the 2007 Budget by raising the exemption level from $1 million to $1.25 million, and by raising the upper threshold on the notch range from $2.0 million to $2.5 million. To use the example in your Policies and Resolutions paper of a small firm with 30 employees with an average salary of $42,000, the new exemption level results in payroll tax of only $430 – substantially reduced from the $11,180 it would have paid under the previous level. The same firm in Ontario would pay $16,770 due to their lower exemption of only $400,000. So even though our tax rate is marginally higher, the proportion of businesses impacted by payroll tax in Manitoba is much smaller than in Ontario. On top of that, Manitoba does not impose health care premiums.

It is most common to see Manitoba’s taxes compared with those in Alberta and Saskatchewan – two provinces enjoying extremely high levels of natural resource revenue. However, we compete not just with those provinces, but with the entire world. In this regard, it is very interesting to consider the recent KPMG report: Competitive Alternatives 2008. The sub report on tax compared business taxes in 102 cities in 10 countries, this comparison shows:

• Winnipeg has the 20^th lowest Total Effective Tax Rate (TETR) out of 102 cities;
• Winnipeg has the third-lowest effective Corporate Income Tax (CIT) rate out of 102 cities;
• most strikingly, Winnipeg has a were effective CIT rate and a lower TETR than 58 out of 59 US cities in the study (only San Juan, Puerto Rico was lower). 

It is true that, within Canada, Winnipeg’s TETR ranking is a bit higher than average, but this will improve once the elimination of our capital tax is recognized in the analysis. I would also note that six of the Canadian cities with lower business tax rankings than Winnipeg – those in Atlantic Canada and Quebec – have significantly higher taxes in households. (For a family at $75,000, provincial taxes on personal incomes, retail sales and gasoline range from 15% to 17% higher in those provinces than in Manitoba.) Furthermore, this region benefits from a federal tax credit – the Atlantic Investment Tax Credit – that applies only in the Atlantic region. (This credit is 10%, is partly refundable for small business, and applies to farming, natural resources and manufacturing.)

Thus, our Government’s record of tax reductions has created a business tax environment that is very competitive on an international scale and – according to KPMG – is superior to anything in the continental United States. 

Current Status (additions since last report are in italics):

January 27, 2009: The MCC will mention this issue as part of its 2009 Pre-Budget Submission. As well, the MCC continues to conduct research on this issue and is looking at a project to raise the profile of this issue.