Ottawa responds to U.S. tax reforms with $16B package
OTTAWA — The federal Liberals have come up with a $16-billion answer to Canada’s competitiveness concerns.
Ottawa’s long-awaited plan to help Canada compete with the United States for investment dollars is the centrepiece of its latest fall economic statement, which forecasts slightly deeper annual deficits over the coming years.
Finance Minister Bill Morneau had faced pressure from the business community to take the big step of lowering the corporate tax rate across the board as his response to major tax and regulatory reforms in the U.S.
In Wednesday’s economic update, Morneau chose a cheaper approach – but one that will still use billions worth of extra federal fiscal space to offer tax incentives for businesses that invest in Canada.
Speaking with reporters, Morneau said Canada is benefiting from “a very good situation” when it comes to the health of the economy and the labour market. After hearing from companies, however, the government decided to do more to encourage investors to open their wallets north of the border.
“We know that we have to consider investments in the future,” he said Wednesday shortly before tabling the fall update in the House of Commons. “That’s why we listened to and heard the anxieties of the business sector.”
As part of the announcement, a government backgrounder warned the American reforms could significantly erode Canada’s overall business-tax advantage compared to the United States.
By far, the biggest-ticket items among the proposed tax measures are changes that would enable businesses to immediately write off the full cost of some types of machinery and equipment, and allow companies of all sizes and in all sectors to expense a larger share of newly acquired assets.
The new write-offs alone are expected to lower federal revenues by about $14 billion over the next half-decade.
As part of its competitiveness plan, the government also proposed about $1.1 billion over the coming years towards efforts to open new markets for Canadian exporters. The amount includes a re-allocation of close to $800 million in infrastructure funds towards improving transportation capacity – at marine ports, in particular – to boost overseas trade.
Ottawa also plans to add another $800 million over five years to its strategic innovation fund, which supports “innovative” investments in all sectors.
A stronger economy has given the government about $22 billion in extra fiscal room over the coming years, compared to what federal forecasters projected in last February’s budget. But the new initiatives will also contribute to slightly larger-than-expected annual shortfalls, beginning next year.
The government is now projecting deficits of $18.1 billion in 2018-19, $19.6 billion in 2019-20 and $18.1 billion in 2020-21. After 2020-21, the annual shortfalls are expected to shrink each year to $11.4 billion in 2023-24.