{"id":9520,"date":"2018-05-15T08:38:13","date_gmt":"2018-05-15T12:38:13","guid":{"rendered":"http:\/\/business.financialpost.com\/?p=1590847"},"modified":"2018-05-15T08:38:13","modified_gmt":"2018-05-15T12:38:13","slug":"with-just-this-one-sensible-policy-change-morneau-can-make-canada-competitive-again","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2018\/05\/15\/with-just-this-one-sensible-policy-change-morneau-can-make-canada-competitive-again\/","title":{"rendered":"With just this one sensible policy change, Morneau can make Canada competitive again"},"content":{"rendered":"<p>It\u2019s been more than two months since Finance Minister Bill Morneau <a href=\"https:\/\/www.theglobeandmail.com\/news\/politics\/morneau-analyzing-big-us-tax-cuts-rules-out-impulsive-canadian-response\/article38012764\/\">said<\/a> he would study Canada\u2019s crumbling business tax advantage \u2014 while cautioning against any \u201cimpulsive\u201d measures in response to tax changes south of the border that overnight wiped away our decade-plus business tax advantage over the United States.<\/p>\n<p>Still today, despite a chorus of <a href=\"http:\/\/nationalpost.com\/opinion\/john-ivison-the-slow-bleeding-of-corporate-canada-is-about-to-get-underway-and-only-morneau-can-stop-it\">warnings<\/a> 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.<\/p>\n<p>In reality, however, Canada\u2019s declining competitiveness \u2014 especially vis-\u00e0-vis the U.S. \u2014 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 \u2014 and the resultant economic benefits such as increased employment, gains in worker productivity and ultimately higher wages \u2014 to more hospitable jurisdictions.<\/p>\n<ul class=\"related_links\">\n<li><a href=\"http:\/\/business.financialpost.com\/opinion\/sorry-mr-morneau-but-theres-no-denying-that-canadas-competitiveness-is-dismal\">Sorry, Mr. Morneau, but there\u2019s no denying that Canada\u2019s competitiveness is dismal<\/a><\/li>\n<li><a href=\"http:\/\/business.financialpost.com\/opinion\/jack-mintz-end-the-denial-and-admit-it-canada-has-a-competitiveness-problem\">Jack Mintz: End the denial and admit it: Canada has a competitiveness problem<\/a><\/li>\n<li><a href=\"http:\/\/business.financialpost.com\/opinion\/bill-morneau-ignore-the-gossip-and-guesswork-the-facts-prove-that-canadas-competitive\">Bill Morneau: Ignore the gossip and guesswork. The facts prove that Canada\u2019s competitive<\/a><\/li>\n<\/ul>\n<p>As of last year, Canada\u2019s federal-provincial combined statutory corporate tax rate was 26.6 per cent compared to 39.1 per cent in the U.S. And when considering the effective tax rate on new investment \u2014 a broader measure of business tax competiveness, which includes input taxes, credits and deductions \u2014 the rate gap was even greater (Canada\u2019s 20.9 per cent versus 34.6 per cent in the U.S., according to <a href=\"https:\/\/www.policyschool.ca\/wp-content\/uploads\/2018\/02\/2017-Tax-Competitiveness-Bazel-Mintz-Thompson-final.pdf\">calculations<\/a> by University of Calgary economists Jack Mintz and Philip Bazel).<\/p>\n<p>That advantage is now gone. U.S. tax reforms lowered the federal statutory corporate income tax rate from 35 to 21 per cent, allowed immediate expensing of capital investment, and created incentives to move overseas profits to the U.S. Together, these changes dramatically reduced the effective tax rate on new investment in the U.S. to 18.8 per cent, bringing the U.S. rate below Canada\u2019s (again, 20.9 per cent) for the first time in well over a decade.<\/p>\n<p>Without a business tax advantage, Canada will have a harder time attracting investment since the country is already hampered by higher personal income tax rates on professionals and entrepreneurs, a growing regulatory burden, and a smaller market relative to the U.S.<\/p>\n<p>But here\u2019s the good news. Canada can regain its business tax advantage, without requiring Ottawa or the provinces to dig deeper into debt.<\/p>\n<p>So what\u2019s this silver bullet? Scrap corporate welfare and use the fiscal room to cut corporate tax rates.<\/p>\n<p>Business subsidies \u2014 also known as corporate welfare \u2014 distort the economy by giving advantages to particular businesses or industries, putting businesses that may be otherwise more innovative or productive (but lack the contacts or political clout to receive subsidies) at a disadvantage. Academic <a href=\"https:\/\/www.fraserinstitute.org\/studies\/corporate-welfare-144-billion-addiction\">evidence<\/a> finds that corporate welfare generally does not stimulate the overall economy. Instead, it redirects resources from particular businesses or industries to those favoured by government.<\/p>\n<p>Business subsidies can also irritate our trading-partner countries, threatening Canadian access to foreign markets such as the U.S.<\/p>\n<p>A recent <a href=\"https:\/\/www.policyschool.ca\/wp-content\/uploads\/2018\/01\/Business-Subsidies-in-Canada-Lester.pdf\">study<\/a> identified $29 billion in business subsidies \u2014 both spending and tax measures \u2014 from Ottawa and Canada\u2019s four largest provinces (B.C., Alberta, Ontario and Quebec). The federal share represents $14 billion, and eliminating just $8.5 billion (60 per cent) of that federal corporate welfare would allow Ottawa to cut the general corporate income tax rate by <a href=\"http:\/\/www.readyreckoner.ca\/?locale=en-CA\">five percentage points<\/a>, from 15 per cent to 10 per cent.<\/p>\n<p>There\u2019s really no excuse for Minister Morneau not to respond to U.S. tax reforms. Ignoring the problem will further harm Canada\u2019s investment prospects. There\u2019s a cost-neutral way to restore Canada\u2019s business tax advantage and end the harmful practice of corporate welfare, which is a very poor use of taxpayer money.<\/p>\n<p><em>Charles Lammam is director of fiscal studies at the Fraser Institute (<a href=\"http:\/\/www.fraserinstitute.org\/\">www.fraserinstitute.org<\/a>)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Opinion: Scrap corporate welfare and use the fiscal room to cut corporate tax rates<\/p>\n","protected":false},"author":578,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/9520"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/578"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=9520"}],"version-history":[{"count":3,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/9520\/revisions"}],"predecessor-version":[{"id":9582,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/9520\/revisions\/9582"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=9520"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=9520"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=9520"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}