Canada dodges bul­let on U.S. bor­der tax

Move viewed as pos­i­tive sign for NAFTA talks

National Post (National Edition) - - CANADA - JOAN BRYDEN AND STEVE LAM­BERT

The Trump ad­min­is­tra­tion’s de­ci­sion to drop a pro­posed bor­der tax re­moves the threat of a trade war just as Canada, Mex­ico and the U.S. pre­pare to launch ne­go­ti­a­tions for a new North Amer­i­can Free Trade Agree­ment, re­lieved Cana­dian busi­ness lead­ers say.

But it also po­ten­tially re­duces the pres­sure on Prime Min­is­ter Justin Trudeau to slash Canada’s cor­po­rate tax rate to keep pace with a promised steep re­duc­tion in the United States.

The bor­der ad­just­ment tax was in­tended to off­set the mas­sive rev­enue hole Pres­i­dent Don­ald Trump’s planned com­pre­hen­sive tax re­form — in­clud­ing cut­ting the cor­po­rate tax rate to 15 per cent — will blow in the Amer­i­can bud­get.

“With this taken out of it, it will be in­ter­est­ing to see what this means for the over­all pack­age, what is the size of the cor­po­rate tax cut, for ex­am­ple, that’s been dis­cussed,” said Brian Kingston, the Busi­ness Coun­cil of Canada’s vice-pres­i­dent of pol­icy, in­ter­na­tional and fis­cal is­sues

Kingston added that a dra­matic re­duc­tion in Amer­i­can cor­po­rate taxes “does cre­ate com­pet­i­tive­ness im­pli­ca­tions for Canada.”

“So, if they went to 15 (per cent), which is very am­bi­tious, you could see a sit­u­a­tion where the Cana­dian govern­ment would have to start think­ing about how we re­spond to make sure that we don’t lose in­vest­ment man­dates to the south.”

Amer­i­can of­fi­cials said Thurs­day they’re “con­fi­dent” a tax on im­ports is no longer needed to pay for broader tax re­form. But pri­vately some Cana­dian busi­ness lead­ers be­lieve the de­ci­sion to scrap the bor­der tax means the promised re­duc­tions in per­sonal and cor­po­rate taxes will have to be scaled back.

Lit­tle won­der then Trudeau, whose govern­ment is al­ready awash in red ink and could ill-af­ford hav­ing to match a U.S. re­duc­tion in cor­po­rate taxes, ex­pressed sat­is­fac­tion Fri­day the bor­der tax has been scratched.

“There is no eco­nomic re­la­tion­ship any­where in the world like the one be­tween Canada and the United States and that needs to be pro­tected,” Trudeau said in Kenora, Ont. “The bor­der ad­just­ment tax would have been a se­ri­ous im­ped­i­ment to trade with Canada.”

Per­rin Beatty, pres­i­dent of the Cana­dian Cham­ber of Com­merce, said uni­lat­eral im­po­si­tion of a bor­der tax “would have been a very de­struc­tive ac­tion to take that would have pre­cip­i­tated a trade war” just as ne­go­ti­a­tions to mod­ern­ize NAFTA are set to be­gin on Aug. 16.

That the Trump ad­min­is­tra­tion has scrapped the idea bodes well for the NAFTA ne­go­ti­a­tions, sug­gest­ing that the U.S. is back­ing off some of the pres­i­dent’s “ex­treme ideas” and that “com­mon sense will pre­vail and that we will have a good and con­struc­tive free trade agree­ment af­ter tough ne­go­ti­a­tions,” he added.

“We see this as a def­i­nite good first sign even be­fore the for­mal ne­go­ti­a­tion process has be­gun,” agreed Ash­ley Ziai, se­nior pol­icy an­a­lyst, na­tional af­fairs, for the Cana­dian Fed­er­a­tion of In­de­pen­dent Busi­ness.

While scrap­ping the bor­der tax may mean di­al­ing back the promised re­duc­tion in the U.S. cor­po­rate tax rate, Beatty said that doesn’t nec­es­sar­ily di­min­ish the pres­sure on Canada to re­lieve the tax and reg­u­la­tory bur­den on busi­ness.

At 15 per cent, the fed­eral cor­po­rate tax rate in Canada is cur­rently lower than the U.S. rate but, as Beatty wrote in a let­ter to Trudeau ear­lier this week, there are other fac­tors — in­creases in min­i­mum wages, es­ca­lat­ing busi­ness fees, new car­bon taxes and high elec­tric­ity bills, among them — that are al­ready hurt­ing Cana­dian com­pa­nies’ abil­ity to com­pete.

“It’s the cu­mu­la­tive im­pact of all of those things that are mak­ing our busi­nesses less and less com­pet­i­tive in the global mar­ket­place at a time when oth­ers are up­ping their game,” he said.

TED PRITCHARD / THE CANA­DIAN PRESS

Prime Min­is­ter Justin Trudeau ex­pressed re­lief that the U.S. will not go ahead with plans for a bor­der tax.

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