Senate committee urges major overhaul of taxation system, trade infrastructure
October 16, 2018
Ottawa – Canada must overhaul its tax system and make it more friendly to business if the country is to remain competitive, the Senate Committee on Banking, Trade and Commerce said in a report released Tuesday, October 16, 2018.
The report, Canada: Still Open for Business? examines new and emerging issues for Canadian importers and exporters with respect to the competitiveness of Canadian businesses. Recent tax changes in the United States, for example, have reduced Canada’s competitive advantage. In the short term, the federal government must take steps — like cutting the corporate tax rate — to curb the flight of investment and talent to the south. In the long term, the committee recommends that the government set up a Royal Commission on Taxation to make long-overdue reforms to Canada’s dated tax system.
Meanwhile, stalled energy projects have damaged Canada’s reputation as a country that can get things done and highlighted the urgent need for trade infrastructure. The lack of pipelines prevents Canada from getting the best price for its oil resources, which costs money and jobs.
Businesses, professionals and capital are increasingly mobile. The federal government must create a hospitable climate for these economic growth drivers or Canada risks being left behind. The committee’s report makes six recommendations to keep Canada open for business.
- The last Royal Commission on taxation took place in 1962. Piecemeal change has taken place in the intervening years, making the tax system more burdensome. It has been decades since the last major overhaul of the tax system.
- In December 2017, the U.S. corporate income tax rate fell from approximately 39.1% to 26.0%, when accounting for subnational rates. At 26.7%, Canada’s rate went from being far lower than the U.S. rate to slightly higher, effectively eliminating Canada’s main corporate tax advantage over the United States.
- Witnesses identified protection of intellectual property as a particular concern for high-tech firms; a lack of robust protection makes these companies less inclined to expand outside of Canada.
- Within the last two years, three major pipeline projects have faced major regulatory challenges. The Energy East and Northern Gateway pipeline projects were cancelled in 2017 and the Trans Mountain pipeline was first purchased by the federal government and then had its approval overturned by the courts in 2018.
- Over three quarters of Canadian exports and more than half of Canadian imports go to and come from the United States. The committee believes the government should pursue closer trading relationships with other countries to reduce Canada’s reliance on the U.S.
“Canada must show the world that it is willing to encourage innovation by allowing industry to be more productive. Businesses can choose the jurisdiction that best suits their needs. We have to make sure that Canada can compete.”
– Senator Doug Black, Q.C., Chair of the committee.
“If the federal government fails to implement these recommendations, Canada risks being left behind and our economic prosperity will decline — not just in one region but from coast to coast to coast.”
– Senator Carolyn Stewart Olsen, Deputy Chair of the committee.
Read the report, Canada: Still Open for Business?
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