Canada needs tax reforms, trade policy big risk, OECD warns

OTTAWA Canada’s economic growth is strong and some housing market vulnerabilities have improved, but trade policy is a big risk to the outlook and the government should reform taxes to boost corporate competitiveness, the OECD said on Monday.

The Paris-based Organisation for Economic Co-operation and Development said while GDP growth is projected to remain robust, with exports underpinned by strong global demand, rising rates will sap some consumer strength.

On the whole, the OECD sees Canada’s economy growing 2.1 per cent this year and 2.2 per cent in 2019, down from 3.0 per cent in 2017, while exports and employment continue to improve and CPI inflation rises to 2.3 per cent in 2018 and 2.2 per cent in 2019.

The greatest risk in the outlook is trade protectionism, the OECD said, noting that uncertainty around the future of U.S. trade policy may be dampening investment.

It said the termination of the North American Free Trade Agreement would have “a small but material effect” on gross domestic product, with potential losses around 0.5 per cent of GDP in the short term and 0.2 per cent of GDP in the long term. The OECD said U.S. corporate tax cuts have hurt Canadian competitiveness, reinforcing the negative hit from NAFTA uncertainty. “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 OECD said.