Investment outflow from Canada already underway: RBC head
OTTAWA — The head of one of Canada’s largest banks is urging the federal government to stem the flow of investment capital from this country to the United States — because, he warns, it’s already leaving in “real time.”
RBC president and CEO Dave McKay discussed some of his concerns about Canadian competitiveness, particularly those related to recent U.S. tax reforms, during a recent interview.
Ottawa has come under pressure from corporate Canada to respond to a U.S. tax overhaul that’s expected to lure business investments south of the border.
McKay told The Canadian Press that a “significant” investment exodus to the U.S. is already underway, especially in the energy and clean-technology sectors. The flight of capital, McKay added, will likely be followed by a loss of talent, which means the next generation of engineers, problem solvers and intellectual property could be created not north of the border, but south of it instead.
“We would certainly encourage the federal government to look at these issues because, in real time, we’re seeing capital flow out of the country,” McKay said.
“We see our government going around the world saying what a great place Canada is to invest — yes, it is a great country, it’s an inclusive country, it’s a diverse country, it’s got great people assets. But if we don’t keep the capital here, we can’t keep the people here — and these changes are important to bring human capital and financial capital together in one place.”
Since the election of U.S. President Donald Trump, Canada’s investment landscape has been dealing with deep uncertainty related to the ongoing renegotiation of the North American Free Trade Agreement. But many point to Trump’s recent U.S. tax measures as potentially more dangerous, fearing that dramatic corporate tax cuts in the U.S. will eliminate Canada’s advantage.
McKay pointed to a change that enables U.S. companies to immediately write off the full cost of new machinery and equipment.
“The acceleration of that in the U.S. completely changes the investment returns that you see on major investments,” said McKay. “I think that alone may shrink competitiveness.”
Tax expert Jack Mintz said the U.S. change allows firms in all sectors to expense the full cost of new equipment. In comparison, he said, Canada has a two-year writeoff for equipment for just the manufacturing and the processing sectors.
Although the business community pressed federal Finance Minister Bill Morneau to take specific steps in his February budget to address the competitiveness concerns, their efforts went unrewarded.
But a spokesperson for Morneau argued Canada’s corporate tax rates remain competitive.
“There will be no knee-jerk reactions from this minister, and we are doing our homework,” Daniel Lauzon said. “This includes listening to, and hearing from, the business community on how the competitive environment is evolving.”