U.S. tax cuts changing Canada’s edge
Martinrea will build a new facility in Michigan, not in its home province, Ontario. Company execs are grumbling about rocketing electricity costs and higher minimum wage
The brass at Martinrea International Inc. ran the numbers, and they added up to a no-brainer. The new technical centre would be built across the border in Michigan, not in its home province of Ontario.
For a company with manufacturing and engineering facilities in eight countries, it wasn’t necessarily surprising that Canada’s third-largest auto-parts supplier would make such a decision. But the reasoning was harsh.
“Canada’s advantage is in the process of going out the window,” chairperson Rob Wildeboer said in an interview before the ribbon-cutting on the research and development complex in Ann Arbor that employs about 160 people.
Wildeboer reeled off his evidence, including rocketing electricity costs and changes to Ontario’s labour rules, which include a 30-per-cent hike to the minimum wage. While national economic growth is projected to slow this year, the U.S. economy is accelerating, getting a boost from tax cuts that he said put his country in the shade.
Around the country, business owners and corporate executives are grumbling. Quebec, Alberta and British Columbia are also boosting minimum wages. The federal government is requiring provinces to put a price on carbon emissions to help fight climate change in a program that could push power bills up further. Railroad bottlenecks threaten Canada’s standing as a major commodities exporter. There’s insufficient pipeline capacity for the oilsands boom.
But, according to Wildeboer and others, what threw the competitive challenges into stark relief were the U.S. tax changes championed by U.S. President Donald Trump. For years, Canada boasted much lower corporate levies. That edge has vanished. The U.S. rate tumbled to about 26 per cent from 39 per cent — including what states take — compared with Canada’s combined rate of roughly 27 per cent.
After years of focus by provincial and federal Liberal governments on issues such as income inequality, diversity and the environment — with Prime Minister Justin Trudeau winning international plaudits for his efforts — a chorus is demanding that more attention be paid to old-fashioned economic growth.
Canadians have to answer some tough questions, said Don Walker, CEO of Aurora, Ont.-based Magna International Inc., North America’s largest auto supplier. “Do we want to be a capitalist country, where you’re attracting the capital and you’re building businesses and hiring people? Or do we want to be more socialist, where the government gets bigger, spends more money, puts us into this huge debt, which is going to burden future generations and makes it less competitive to do business here?”
He has a fair number of backers, such as Ron Mittelstaedt, CEO of Waste Connections Inc., which acquired Progressive Waste Solutions Ltd. for about $8 billion (U.S.) in 2016 and moved its headquarters from Texas to Vaughan — part of a wave of so-called tax inversions executed to take advantage of Canada’s then-lower tax bill.
While Mittelstaedt has no intention of moving the company back, he said high capital gains taxes on families selling businesses have killed 10 to 12 deals for Waste Connections in the past 18 months and are a major inhibition to deal activity. Canada, he said, is “effectively a socialized nation.”
And there’s the rub for Canada: Trudeau’s upbeat attitude is increasingly being pushed aside by stark economic calculations.