Feds urged to boost economy first, not tax, in recovery
Lifting economy must be priority before recovering virus costs, RBC CEO suggests
The chief executive of Canada’s biggest bank suggested Thursday that government shouldn’t try to immediately recover the massive amounts being spent in response to the coronavirus pandemic with taxes, but should instead use the moment to try to attract investment and incentivize business creation.
With global spending on C O V I D - 1 9 - r e l a t e d a c t i o n s amounting to around 10 to 15 per cent of gross domestic product, and with questions about how and when this money will be paid back, tax policy “becomes really important,” Royal Bank of Canada president and CEO Dave Mckay said during a digital panel for the Collision conference.
“I would encourage our politicians not to tax that back right away,” he added.
Instead, Mckay suggested there should be incentives for needed “risk” capital, as well as for the formation of companies.
Speed to market, the CEO added, is critical.
“There’s lots of countries that are thinking the same thing,” Mckay said.
“There’s an opportunity to repatriate jobs, an opportunity to build up manufacturing bases and digital capabilities. So taxation policy and regulation are really critical components for businesses to come together with government to take advantage of the opportunities before us.”
Mckay was speaking on an online panel about “Canada post-pandemic” with Joe Natale, president and CEO of telecom giant Rogers Communications Inc., who suggested there should be investment in Canada’s digital infrastructure as well.
Natale specifically pointed to next-generation 5G cellular networks, which he noted were under development in most major countries around the world.
“The opportunity is incredible,” the Rogers CEO said.
“And we need the regulatory support, the investment support, the immigration support, if we’re going to make all this happen.”
The remarks by the CEOS of two of Canada’s biggest companies come after some business leaders have already voiced concern their firms may be handed bigger tax bills in the wake of the pandemic.
A survey conducted in April by Environics Research for the Institute of Corporate Directors found 78 per cent of directors who responded were worried Canadian businesses would face higher corporate and payroll taxes.
Finance Minister Bill Morneau told CTV earlier this month that the federal government would not raise taxes at the moment to try to help cover the cost of COVID-19 support programs.
However, the concerns from corporate directors and the assurances from the finance minister were recorded before a recent downgrade of Canada’s credit rating and prior to a bleaker outlook for the economy in 2020.
Fitch Ratings downgraded Canada’s credit rating on Wednesday to AA+ from AAA, which the ratings agency said was due to the coronavirus pandemic causing a “deterioration” of the country’s public finances this year.
Fitch said it expects the money being spent in response to the crisis to pump up Canada’s consolidated gross general government debt to 115.1 per cent of GDP in 2020, up from 88.3 per cent last year.
The ratings agency also said the outlook for Canada is stable, reflecting its expectation that the government’s debt-to-gdp ratio will stabilize, “and that the economy will gradually recover, supported by significant counter-cyclical monetary and fiscal policies.”
However, Fitch’s downgrade came the same day as an International Monetary Fund forecast that the Canadian economy would shrink by 8.4 per cent this year, 2.2 percentage points worse than the IMF’S estimate in April.
For 2021, the IMF estimated the Canadian economy would grow by 4.9 per cent, 0.7 percentage points higher than the April forecast.
“The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” said the IMF, which now projects the global economy will contract 4.9 per cent in 2020.
There’s an opportunity
... to build up manufacturing bases and digital capabilities.