Feds fo­cus on com­pet­i­tive­ness

Gov­ern­ment look­ing at tar­geted mea­sures over cor­po­rate tax cuts, sources say

The Daily Press (Timmins) - - COMMUNITY LISTINGS - Andy Blatchford

OT­TAWA — Fi­nance Min­is­ter Bill Morneau is look­ing at tar­geted mea­sures to en­hance Canada’s com­pet­i­tive­ness rather than broad-based cor­po­rate tax cuts, sources say.

For months, the fed­eral Lib­er­als have been un­der pres­sure from busi­ness lead­ers to re­spond to a U.S. tax over­haul that many warn has put Canada at a dis­ad­van­tage.

Morneau told re­porters this week that he hadn’t ruled any­thing out when specif­i­cally asked whether tax cuts would be part of his com­pet­i­tive­ness plan.

But Morneau has been meet­ing with busi­nesses across the coun­try in an ef­fort to find the best way to deal with the U.S. changes. And sources with knowl­edge of the fed­eral ap­proach who spoke on con­di­tion of anonymity say his em­pha­sis has been con­sis­tently on tar­geted mea­sures.

Morneau in­tends to an­nounce plans in his fall eco­nomic up­date to bol­ster Canada’s com­pet­i­tive­ness.

The Trump ad­min­is­tra­tion’s changes in­clude big tax re­duc­tions for busi­nesses and loos­ened reg­u­la­tions, which have cre­ated fears Canada has lost part of its edge as an in­vest­ment des­ti­na­tion.

The fi­nance min­is­ter has been an­a­lyz­ing the im­pacts of the U.S. changes and has spent the sum­mer on a “lis­ten­ing tour” to get feed­back from the Cana­dian busi­ness com­mu­nity.

In­dus­try stake­hold­ers have been calling for lower taxes — but a cut to the fed­eral cor­po­rate rate would come at a cost. A tool on the par­lia­men­tary bud­get of­fi­cer’s web­site es­ti­mates that a one per­cent­age point re­duc­tion to the busi­ness tax rate would trim about $1.7 bil­lion per year from fed­eral rev­enues.

There are, how­ever, also rec­om­men­da­tions that Morneau con­sider a cheaper op­tion: al­low­ing all com­pa­nies to im­me­di­ately write off new equip­ment pur­chases.

The U.S. tax pack­age en­ables Amer­i­can com­pa­nies to im­me­di­ately write off the full cost of new ma­chin­ery and equip­ment. Canada al­ready of­fers this pro­vi­sion for its man­u­fac­tur­ing sec­tor and there are calls for it to be ex­panded to cover all in­dus­tries.

Some ex­perts be­lieve this kind of mea­sure should be com­bined with cuts to busi­ness taxes.

A study re­leased Wed­nes­day by the PwC ac­count­ing firm warned the Amer­i­can tax re­forms will have a ma­jor, neg­a­tive im­pact on Canada.

They will shift in­vest­ment to the U.S. and hurt eco­nomic ac­tiv­ity in Canada, it said.

The anal­y­sis said the U.S. changes threaten 635,000 Cana­dian jobs, which rep­re­sents about 3.4 per cent of all work­ers, and could lower Canada’s gross do­mes­tic prod­uct by 4.9 per cent. The re­port said $20 bil­lion worth of gov­ern­ment rev­enue could also be at risk.

The study was com­mis­sioned by the Busi­ness Coun­cil of Canada, which has been push­ing for lower cor­po­rate taxes.

“Canada’s rel­a­tively favourable cor­po­rate tax en­vi­ron­ment was a ma­jor ad­van­tage in terms of at­tract­ing new in­vest­ment,” said the re­port, which rec­om­mends fed­eral and provin­cial tax re­duc­tions among its pol­icy op­tions.

“Due to the U.S. tax re­form, this ad­van­tage has now dis­ap­peared.”

The assess­ment paints a far bleaker pic­ture than es­ti­mates re­leased last spring by the Bank of Canada.

The cen­tral bank fig­ured the U.S. re­forms could lower busi­ness in­vest­ment by about three per cent from 2017 to the end of 2020. The bank said this would shave the level of eco­nomic growth by about 0.2 per cent by the end of 2020.

Morneau faced crit­i­cism from the busi­ness com­mu­nity af­ter his Fe­bru­ary bud­get lacked spe­cific steps to ad­dress their com­pet­i­tive­ness con­cerns.

The fi­nance min­is­ter wanted more time as­sess the sit­u­a­tion and his of­fice has in­sisted he would avoid any “knee-jerk re­ac­tions.”

Chris Young/ THE CANA­DIAN PRESS

Fi­nance Min­is­ter Bill Morneau told re­porters this week that he hadn’t ruled any­thing out when specif­i­cally asked whether tax cuts would be part of his com­pet­i­tive­ness plan. For months, the Lib­er­als have been un­der pres­sure from busi­ness lead­ers to re­spond to a U.S. tax over­haul.

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