Ottawa’s Fall Economic Update To Include Targeted Measures To Boost Competitiveness

As he prepares his annual fall economic update, Federal Finance Minister Bill Morneau is reportedly planning to introduce a number of targeted tax measures to boost the country's competitiveness instead of cutting the corporate tax rate.

Senior officials within the Department of Finance told CBC News Thursday that they are working on alternative measures to boost Canada’s competitiveness vis-à-vis the neighbouring United States, but remain reluctant to lower corporate tax rates for fear that it could increase the federal deficit.

The Liberal government of Prime Minister Justin Trudeau has been the target of aggressive lobbying by national business groups that want Canada's corporate tax structure brought more in line with the U.S., where President Donald Trump slashed the federal statutory corporate income tax rate to 21% from 35% at the start of 2018.

Canada's corporate tax rate – federal and provincial combined – presently averages 27%. Critics say that puts Canadian businesses at a competitive disadvantage and is resulting in a growing amount of investment dollars being funneled into the U.S. rather than Canada.

Morneau has responded to the criticism by going on what he calls a "listening tour" of Canadian businesses. While criss-crossing the country, he's been asking business leaders whether U.S. efforts to repatriate investment dollars has been successful and what Canada should do about it.

Now, Ottawa insiders are leaking information to the media ahead of the Finance Minister’s economic update that the plan is to match the U.S. on giving companies the ability to write off their capital investments against their taxes. Specifically, the Finance Department is considering
accelerating the capital cost allowance to somewhere between one and five years. Right now, Canadian businesses can only write off some of their capital investments over the lifetime of an asset.

The question is whether the measures being considered by the Finance Department will be enough to satisfy Canada’s private sector. Earlier this week, the Business Council of Canada released a report it commissioned from PricewaterhouseCoopers that found the negative impact of U.S. tax reform on Canada's economy could be 10 times worse than the potential fallout from the termination of the North American Free Trade Agreement.

"This report underlines the need for the federal government to respond to U.S. tax reform with a comprehensive plan to strengthen Canada's economic competitiveness," said Business Council President and Chief Executive Officer John Manley in a written media statement.

The Business Council report follows another one released in June by the Canadian Manufacturers and Exporters, which represents a total of 2,500 companies nationwide. It showed a sharp decline in business investment throughout Canada.