Canada must escape the corporate welfare trap
It’s been more than two months since federal Finance Minister Bill Morneau said he would study Canada’s crumbling business tax advantage – while cautioning against any “impulsive” measures in response to tax changes south of the border that overnight wiped away a decade-plus business tax advantage over the United States.
Yet, despite a chorus of warnings from business leaders and economists, politicians across the country seem unwilling to admit that recent U.S. tax reforms have created a problem for Canada.
In reality, however, Canada’s declining competitiveness – especially vis-à-vis the U.S. – poses a real threat to the long-term prosperity of Canadians. As our country becomes a less attractive place to invest, we risk losing investment dollars – and the resultant economic benefits such as increased employment, gains in worker productivity and ultimately higher wages – to more hospitable jurisdictions.
As of last year, Canada’s federal-provincial combined statutory corporate tax rate was 26.6 percent, compared to 39.1 percent in the U.S. And when considering the effective tax rate on new investment – a broader measure of business tax competitiveness, which includes input taxes, credits and deductions – the rate gap was even greater (Canada’s 20.9 percent versus 34.6 percent in the U.S., according to calculations by University of Calgary economists).