U.S. capital spending write-offs creating ‘unequal playing field’
Morneau says those rules may be more consequential than corporate tax cuts
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 npowell@nationalpost.com Twitter.com/Naomi_Powell
We need to keep our tax code competitive and that’s a continuing agenda.