U.S. cap­i­tal spend­ing write-offs cre­at­ing ‘un­equal play­ing field’

Morneau says those rules may be more con­se­quen­tial than cor­po­rate tax cuts

Calgary Herald - - FP CALGARY - NAOMI POW­ELL

The United States’ poli­cies en­abling ac­cel­er­ated write-offs for busi­ness in­vest­ments may be more con­se­quen­tial to Cana­dian com­pet­i­tive­ness than its cor­po­rate tax cuts, Fi­nance Min­is­ter Bill Morneau said Tues­day.

Though he did not rule out cut­ting Cana­dian cor­po­rate taxes as part of a re­sponse to changes south of the bor­der, Morneau said U.S. Pres­i­dent Don­ald Trump’s re­forms “do not put us in a sig­nif­i­cantly dif­fer­ent po­si­tion than the United States.”

How­ever, newly minted rules al­low­ing Amer­i­can busi­nesses to more rapidly deduct cap­i­tal in­vest­ments in items such as equip­ment and tech­nol­ogy create “an un­equal play­ing field,” he said.

“If you’re a man­u­fac­turer with an op­por­tu­nity in Mon­treal and Mon­tana, ob­vi­ously now if you’re mak­ing a new in­vest­ment, you can ac­cel­er­ate that depreciation more rapidly in the United States,” he told busi­ness lead­ers at the For­tune eco­nomic fo­rum in Toronto.

“Those are is­sues we’re look­ing at re­ally care­fully.”

Morneau is fac­ing height­ened con­cerns about Cana­dian com­pet­i­tive­ness after a re­port from the Se­nate bank­ing com­mit­tee called for an ur­gent re­vamp of Canada’s tax and reg­u­la­tory sys­tem.

In ad­di­tion to im­me­di­ate tax cuts for busi­nesses, the re­port re­leased Tues­day rec­om­mends an im­me­di­ate and full write-off of cap­i­tal spend­ing, cut­ting de­lays caused by govern­ment reg­u­la­tions, deep­en­ing trade ties with China and In­dia and form­ing a royal com­mis­sion on tax­a­tion to ad­dress in­ter­na­tional com­pet­i­tive­ness con­cerns.

Un­der mea­sures that took ef­fect in Jan­uary, U.S. cor­po­rate tax rates fell to 26 per cent from 39 per cent, un­der­cut­ting Canada’s com­bined pro­vin­cial and fed­eral rate of 26.7 per cent. Busi­ness groups have warned the moves put Canada at a dis­ad­van­tage when it comes to at­tract­ing in­vest­ment.

Morneau’s fall fis­cal up­date is ex­pected to ad­dress this and other key is­sues of com­pet­i­tive­ness, though he has on oc­ca­sion damp­ened ex­pec­ta­tions of broad tax cuts.

In its Fe­bru­ary bud­get, the De­part­ment of Fi­nance promised to con­duct a thor­ough anal­y­sis of the U.S. mea­sures and Morneau spent the sum­mer con­sult­ing with busi­ness lead­ers. Their “anx­i­eties” were broadly about trade, he said, with ad­di­tional con­cerns spe­cific to each sec­tor.

“There is anx­i­ety about the pos­si­bil­ity for the next in­vest­ment de­ci­sion based on the dif­fer­en­tial be­tween the U.S. and Canada taxes for some small sub­set of busi­ness in­vestors,” he said. “Then of course, there’s a sense of con­cern in the oil and gas sec­tor over ac­cess to mar­kets.”

When it comes to the cross­bor­der dif­fer­en­tial in cor­po­rate taxes, the govern­ment is con­sid­er­ing whether it will drive busi­ness de­ci­sions “that mean we won’t get the good in­vest­ments and good jobs here,” he added. “Our goal is to make sure that’s not the case, that we deal with that dif­fer­en­tial.”

In ad­di­tion to ma­jor changes in tax­a­tion and reg­u­la­tion, the Se­nate bank­ing com­mit­tee re­port called for im­prove­ments to Canada’s trade in­fra­struc­ture, in­clud­ing ports, roads, rail­ways and pipe­lines, a rec­om­men­da­tion Morneau said he wel­comed.

“The is­sue around im­prov­ing our ports has been cen­tral,” he told re­porters after the event. “Ob­vi­ously the Trans Moun­tain (pipe­line) de­ci­sion was both im­por­tant for ac­cess to mar­kets for the oil and gas sec­tor but also to con­sider how we best use our rail trans­porta­tion sys­tem. So this will be an on­go­ing agenda item.”

Morneau de­clined to com­ment on a pos­si­ble royal com­mis­sion on tax­a­tion.

“I feel we need to be di­rectly con­sid­er­ing the U.S. changes and the im­pact on Cana­dian busi­nesses as they think about their cross bor­der ac­tiv­i­ties,” he told re­porters. “We need to keep our tax code com­pet­i­tive and that’s a con­tin­u­ing agenda.”

Fi­nan­cial Post npow­[email protected]­tion­al­post.com Twit­ter.com/Naomi_Pow­ell

We need to keep our tax code com­pet­i­tive and that’s a con­tin­u­ing agenda.

ADRIAN WYLD/THE CANA­DIAN PRESS

Fi­nance Min­is­ter Bill Morneau is fac­ing height­ened con­cerns about Cana­dian com­pet­i­tive­ness after a re­port from the Se­nate bank­ing com­mit­tee called for an ur­gent re­vamp of Canada’s tax and reg­u­la­tory sys­tem.

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