The Honourable Rosann Wowchuk, Minister of Finance, recently responded in relation to the Manitoba Chambers of Commerce Resolution called “Payroll Tax Reform”. 

First, to put the Minister’s response into context, consider that the Payroll Tax is profit insensitive tax that is triggered when businesses increase payroll (i.e. when they increase wages and/or hire more Manitobans). As well, here is an excerpt from the MCC’s letter to the Minister:      

“In our Pre-Budget submission we acknowledged the extensive business tax relief that has occurred. However, we also pointed out that the Government of Manitoba’s current vision for tax relief ends in 2011. As you move forward to think about further tax reform, you need to think about reducing and ultimately eliminating this tax on jobs. 

We cannot stress enough the insidious nature of this tax and its impact on our business environment. We recently spoke to a Manitoba company that had divided its operations into three so as not to trigger this tax – imagine the ‘needless’ administration involved in such a move. As well, they were approached by an out-of-province company about a possible merger but the company refused when they learned of the Payroll Tax.”    

Here is what the Resolution calls for: 

“That the Government of Manitoba publicly commit to developing a plan to eliminate the Payroll Tax and, as a first step,  increase the threshold of the Payroll Tax to $2 million for the base threshold and to $3.5 million for the second threshold.” 

Here is the Minister’s response: 

The Honourable Rosann Wowchuk

“I have review the Chambers’ resolution that our government commit to developing a plan to eliminate the payroll tax. We welcome input from your organization on taxation issues and the other matters raised in the Handbook. Maintaining an efficient and competitive taxation system is an ongoing concern of our government, as we manage the spending commitments that Manitobans expect within a responsible fiscal framework. 

Your organization’s concerns regarding the payroll tax will be given careful consideration, as our government’s policy and Budget priorities are formulated going forward. We appreciate the Chambers’ acknowledgement of the extensive tax relief that our government has provided for business. Since 1999, the Manitoba Government has reduced business taxes by $422 million annually and personal income and property taxes by $723 million annually, while continuing to maintain vital front line services in priority areas such as health, justice and community services. Tax reductions are important for ensuring Manitoba maintains its competiveness, but they also serve to promote a number of economic and social opportunities that will better position Manitoba’s economy and business community immediately and in the longer-run. 

Capital investments improve productivity, which is key to growing our economy. Since 1999, our Government has implemented significant changes that promote capital investment and increased productivity. The Manufacturing Investment Tax Credit and the Research and Development Tax Credit have been in place since 1992, but only in the past five years have they been considerably enhanced. 

Since 2005, the Manufacturing Investment Tax Credit (MITC) was broadened to include used property and, since 2008, the credit is primarily refundable. In 2008 (the latest year for which data is available), the MITC returned $42 million to Manitoba businesses.    

In order to further reduce the cost of capital for business, our Government eliminated the capital tax for manufacturers effective July 1, 2008. Other businesses will benefit from the elimination of the general capital tax at the end of this year. The total savings to business from the elimination of the general capital tax is at least $100 million yearly. Furthermore, in recognition of the role that small businesses play in Manitoba’s economy, the small business corporation income tax rate is being eliminated in December 2010. 

Research and development are also important for growing our economy. In 2005, the 15% Manitoba R&D Tax Credit was increased to 20%. The R&D credit returned $21.6 million to Manitoba businesses in 2008 (the latest year for which data is available). In the 2010 Budget, it was my pleasure to announce that the 20% R&D credit is now fully refundable for R&D undertaken with a research institution in Manitoba. Furthermore, I announced the tax credit for in-house will be one-quarter refundable in 2011, increasing to one-half refundable in 2012. Combined these Budget 2010 changes will return an additional $13 million annually to Manitoba businesses, which they can use for R&D, innovation and commercialization. 

Our Government believes that Manitoba’s economic future also lies in promoting and investing in environmentally-friendly technologies. In addition to the development of wind farms in St Leon and St Joseph and the establishment of ethanol and biofuels mandates, we are encouraging Manitobans to convert to renewable resources. The Green Energy Equipment Tax Credit provides businesses and Manitobans who install geothermal or solar heating systems with a maximum 10% refundable income tax credit, based on the cost of their heating systems. Also, manufacturers in Manitoba of qualified geothermal heat pumps qualify for a 5% Green Energy Equipment Tax Credit for pumps produced and sold for installation in Manitoba. Also, the Manufacturing Investment tax Credit was broadened to include energy conservation equipment acquired for use by manufacturers in Manitoba. 

No economy can grow without a continued investment in a better trained and educated workforce. That is why our Government annually provides school divisions with increases in provincial funding that have exceeded the rate of growth in provincial GDP. In addition, we have introduced tax credits to encourage post-secondary graduates to stay or return, and to live and work in Manitoba: in 2007 we introduced the 60% Tuition Fee Income Tax Rebate available to new post-secondary graduates of any institution in the work, and in Budget 2010 I announced a new feature, the Advance Tuition Fee Income Tax Rebate, that allows Manitobans to receive an advance of their Rebate while they are studying. We have also encouraged employers through the Co-Op Education and Apprenticeship Tax Credit to hire post-secondary co-operative education students and graduates and to employ advanced level apprentices and new certified journeypersons. In Budget 2010, I further extended this tax credit to employers who hire secondary students in co-op education programs, as well as entry level apprentices. 

In addition to eliminating the general capital tax and the small business corporation income tax rate, the general corporation income tax rate has been reduced by 29%, from 17% to 12%, which saves businesses an estimated $140 million.   

I believe that this underscores the Chambers’ assessment that our government has made very good progress in establishing “An Environment Where Business Can Thrive”.” 

To access the Resolution Report on this issue here.