Economic environment must support business investment report says
Canada’s tax regime and regulatory uncertainty are putting businesses at a competitive disadvantage according to a new report.
With Canadian business leaders split on the economy, the inaugural Competitiveness Scorecard from the Business Council of Canada and Deloitte Canada ranks Canada’s ability to compete on the world stage based on eight key economic factors.
These include talent, economic stability, capital and investments, customers, infrastructure, innovation, tax, and regulation, with an analysis of a dozen key global competitor nations.
The conclusion? There are changes necessary to help Canadian businesses thrive including tax reforms in light of those made in the US which puts Canadian firms at a disadvantage.
“Canada is one of the top countries in the world to start, grow, and invest in a business,” says Frank Vettese, Managing Partner and Chief Executive, Deloitte Canada. “But to continue leading, our country must remain focused on supporting an economic environment that builds on our strengths and takes aim at factors that are holding us back. This scorecard provides us with an important baseline—across the many dimensions of competitiveness—so that we can measure our nation’s progress toward boosting prosperity for all Canadians.”
Higher taxes
Although Canadians have seen an increase in their after-tax income, the Scorecard shows that Canada’s top income tax rate ranks fourth highest out of the 12 nations analyzed, behind Sweden, Japan, and France; and at 53.5% is well above the 46.3% top rate in the US.
Corporate income tax is a full percentage point above that of the US following last year’s cut.
But that is only one aspect of what’s holding Canadian firms back.
Canada’s share of imports across several major trading partners has declined, showing a loss of market share and suggesting that Canadian firms are not taking full advantage of markets abroad.
Canadian private sector debt as a percentage of GDP stood at 267%, third highest amongst peers, and has consistently climbed over the past decade.
Regulatory burden, weak investment
Canadian regulations are also a burden that affects competitiveness.
Canada’s position on the World Bank’s 2019 Ease of Doing Business report has fallen since 2006, from fourth in the world to 22nd. And obtaining a permit for new construction takes 168 days longer in Canada than the United States.
Meanwhile, Canada’s private gross fixed capital investment (a measure of the overall investment in physical assets within an economy such as plants, machinery and equipment, as well as intellectual property) was the second lowest among peer nations in 2017 at 10.8% of GDP.
Venture capital investment as a share of GDP in Canada was greater than all peers except the United States and Israel and amounted to approximately 0.16% in 2016, but there may still be venture capital shortfalls in some sectors.
“The global economy is changing rapidly and our country faces intense competition for investment, jobs and talent,” said Goldy Hyder, President and Chief Executive Officer of the Business Council. “The Competitiveness Scorecard allows Canadians to see at a glance the areas where we lead and where we lag. Our challenge now is to identify the key actions that will strengthen our country’s prospects, contributing to the tax base that supports Canadians’ social programs and quality of life.”
The full scorecard can be seen at deloitte.ca/scorecard
