In the face of a growing number of calls for Canada to match a recent U.S. corporate tax cut, Finance Minister Bill Morneau has embarked on a “listening” tour of Canadian businesses and is mulling new measures to level the playing field — which could come as early as the fall economic statement.
Meanwhile, the debate over what Canadian businesses need now to be more competitive is likely to be a key part of the conversation at today’s federal-provincial finance ministers’ meeting in Ottawa.
Canadian Manufacturers and Exporters, an industry group representing 2,500 companies, recently joined the Canadian Chamber of Commerce and the National Business Council in urging Morneau to cut the corporate tax rate and boost investment incentives.
“The cost of doing business in Canada is higher and the tax advantage we once had is gone,” said Dennis Darby, president and CEO of Canadian Manufacturers and Exporters.
The administration of U.S. President Donald Trump has cut the top corporate tax rate from 35 per cent to 21 per cent beginning this year.
Canada’s combined corporate tax rate hovers above 25 per cent, depending on the province.
‘We need to do more’
Morneau has said the government is analyzing the impact of the Trump administration’s tax changes and has not ruled out a corporate cut of its own — but it’s clear he wants to hear about more than that in his consultations with businesses, which will ramp up this summer.
“Yes we need to do more,” said Daniel Lauzon, Morneau’s director of communications. “Maybe there are things we can do with regards to the tax rate, but it has to be a broader discussion than just that.”
Even those who have called for lower corporate taxation in response to the Trump administration’s moves say there are measures apart from a tax cut that could help Canadian firms compete.
“When the tide goes out, you find who on the beach wasn’t wearing a bathing suit,” said John Manley, president and CEO of the Business Council of Canada and a former federal minister of finance.
“We were a little bit sheltered behind lower corporate income taxes and now other elements of competitiveness are starting to be exposed.”
Those other elements, Manley said, include Canada’s regulatory regime, labour rules, personal income tax rates and investment incentives.
“These things keep adding up. You can’t be short on all of them. You gotta win on some.”
Manley argues the provinces also have a role to play in lowering corporate taxes and reducing interprovincial trade barriers.
Darby agrees, pointing out that Canadian companies are also competing directly against Asian and European firms through new free trade deals.
“We can’t be fighting with ourselves. Our competition is not Canada. So I hope they all row in the same direction at the finance ministers’ meeting,” said Darby.
As part of his listening exercise, Morneau has invited a number of corporate chief financial officers to Tuesday’s federal-provincial finance ministers’ meeting. The CFOs represent a range of sectors, from retail to manufacturing to natural resources.
Darby said he thinks it’s a good idea for both Morneau and his provincial counterparts to hear what those CFOs have to say.
“They can best represent how investment decisions are made. They are not always made here, in Canada,” said Darby. “They’re often made for many companies south of the border, or in Europe or in Asia, depending on the company.”
Ongoing uncertainty over the fate of the North American Free Trade Agreement is one of the factors driving investment to the U.S. that Canada can do very little about.
But Darby and others have argued Canada could eliminate one competitive disadvantage domestic firms face now — by matching the American taxation rule allowing businesses to write off capital equipment and technology investments at 100 per cent up front.
While tax shifts and other changes could be announced as early as this fall, the finance minister’s spokesperson said the government is going to take its time to fully understand the impact of the U.S. tax reforms.
Manley said the Business Council of Canada is also studying the impact of the U.S. tax cut on its own members, hoping to have a clearer picture by the end of the summer.
“We’re not calling for the government to do things in haste. There are a lot of moving parts,” said Manley, citing the tariff war that has erupted between the U.S. and Canada.
“There is a need for government to take some time to get this right. But they don’t have forever to get it right.”