The Organization for Economic Cooperation and Development (OECD) is urging Canada to boost its competitiveness or risk losing out on critical investment dollars.
In a new report, the OECD warns that Canada risks being left behind in the global race for investment dollars if it doesn’t respond to U.S. tax reform and lower its corporate tax rates.
The OECD said that tax reform in the United States has made Canada a less attractive place to do business and urged the Canadian government to reassess its current tax system.
"Canada’s nominal and marginal effective corporate tax rates were substantially lower than those in the United States, but this advantage has now effectively disappeared," the OECD said in its report. "The government should review the tax system to ensure that it remains efficient – raising sufficient revenues to fund public spending without imposing excessive costs on the economy – equitable and supports the competitiveness of the Canadian economy."
The influential Paris-based OECD also said that trade policy is the greatest uncertainty for the Canadian economy moving forward and early surveys show that those doubts are already hampering investment dollars.
"There would be further negative implications for growth if the North American Free Trade Agreement (NAFTA) was terminated or alternatively a boost to investment if uncertainty were resolved under similar or increased market access," the report said.
If NAFTA is terminated, the OECD estimates that potential losses would amount to about 0.5% of Canada’s gross domestic product (GDP) in the short term and 0.2% of GDP in the long term.
Overall, the OECD expects the Canadian economy to grow 2.1% this year and 2.2% in 2019, declining from 3% in 2017.
