Investment Industry Association of Canada says federal government has work to do
The economic challenges facing Canada will require some key policy decisions from the federal government, with business tax reform an essential component.
That’s one of the takeaways from a new paper from the Investment Industry Association of Canada which is calling on Ottawa to do what’s necessary to address some fundamental issues which have left Canada at the lower end (number 26) of a ranking of 38 OECD countries on business tax competitiveness according to the Tax Foundation.
Canadian business must work with an average combined federal-provincial tax burden above the OECD average and above the average US federal-state level (even before the expected reduction pledged by the Trump administration).
The paper also notes that the marginal effective tax rates on new investment by Canadian businesses vary by industry.
“By discouraging capital accumulation and productivity improvements, corporate income taxes are the most harmful form of taxation for economic growth. Yet, Canada relies more heavily than our neighbours to the south and OECD countries overall on corporate taxes to raise revenue,” IIAC said in a release.
The association says that the action needed is clear and includes boosting Canada’s weak productivity by addressing weak business investment and limited levels of competition.
Citing roughly $45 billion decline in investment in structures and machinery over the last decade in Canada, the report says that Canadians lack the tools they need to do their jobs compared to their US counterparts.
The report also cites decreased foreign direct investment with more direct investment heading out than in resulting in a net loss of $294 billion over the last 10 years, noting that “Foreign direct investment facilitates the transfer and diffusion of technologies, knowledge, and managerial expertise, and promotes international trade, thereby contributing to a more dynamic, productive and competitive economy.”
IIAC is calling for the federal government to:
- Reduce the federal general corporate income tax rate by two percentage points to make Canada a more attractive place to locate businesses and invest.
- Encourage the provinces that have yet to harmonize their provincial sales tax (PST) with the GST to do so.
- Re-balance Canada's tax system so it relies less on taxes that are most harmful to economic growth – i.e. income and profit taxes – and more on consumption taxes.
- Undertake an independent and comprehensive examination of the federal tax system, including a review of tax expenditures/preferences, to ensure it adheres to long-standing principles of good tax policy – neutrality, efficiency, simplicity, and competitiveness.
