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Statement to the House of Commons Standing Committee on Finance Pre-budget consultations

Date: September 30, 2016

Publication Type: Submissions

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Remarks delivered by Brian Kingston, Vice-President, International and Fiscal Issues

Mr. Chairman, committee members, thank you for the invitation to take part in your pre-budget consultations.

The Business Council of Canada represents the chief executives and entrepreneurs of 150 leading Canadian companies, in all sectors and regions of the country. Our member companies employ 1.4 million citizens, account for more than half the value of the Toronto Stock Exchange, contribute the largest share of federal corporate taxes, and are responsible for most of Canada’s exports, corporate philanthropy, and private-sector investments in research and development.

The Canadian economy is stuck in low gear. From 1960 to 2000, GDP growth averaged 3.7 per cent.  Since the start of the century, the pace has slowed markedly to 1.7 per cent. Governor Poloz recently noted that Canada’s growth of potential output is expected to be around 1.5 per cent for the next number of years. In this environment, the federal government must do everything possible to increase Canadian competitiveness and grow the economy.

With Budget 2017, the government has an important opportunity to build on our country’s economic strengths. We recommend taking the following actions:

Grow the economy through trade

Trade has long been a powerful engine for Canadian growth. The best way to spur the economy is to position Canada as one of the world’s most open and global markets.

The timely implementation of trade agreements with the European Union and members of the Trans-Pacific Partnership (TPP) would give Canada preferential access to more than 60 per cent of the global economy, nearly 90 per cent of our country’s existing export markets, and three of the world’s four largest economies.

At the same time, Canada must continue to strengthen the North American marketplace. North American prosperity can be enhanced by modernizing borders through the adoption of data-driven traceability of goods, enhanced information-sharing in exchange for more substantial benefits for “trusted traders”, and investments in much-needed border infrastructure.

Finally, Canada should develop a comprehensive China strategy.  Efforts to eliminate trade and investment barriers will give Canadian companies a competitive advantage in China, our second-largest two-way trading partner.  According to a recent study by economists Laura Dawson and Dan Ciruiak, a Canada-China free trade deal would generate $7.8 billion in additional economic activity within 15 years, supporting 25,000 jobs.

Leverage infrastructure investments

A competitive economy requires world-class infrastructure to connect businesses to customers around the globe. We recommend the government prioritize projects that have a direct and measurable impact on the Canadian economy.  This includes productivity- and trade-enhancing infrastructure projects such as investments in ports, rail, roads, and airports. Given the important role the energy industry plays in the Canadian economy as a source of jobs and tax revenue, infrastructure that delivers our natural resources to tidewater must be a top priority.

Given the government’s vision for robust regulatory and consultative processes to precede approvals of major infrastructure projects, it is important that funding is adequate to the task and conditional upon these processes being completed in a timely fashion.

Foster innovation

A more innovative economy is critical to the prosperity of the country. There are a number of programs that should be aligned and coordinated under the federal government’s Innovation Agenda. This includes programs that support the development of top talent, policies that help businesses to grow in Canada and simplification of federal supports for business R&D. Importantly, in some cases the best thing the government can do is stay out of the way, allowing business owners to decide for themselves where and how to invest in new products or processes.

Comprehensive tax reform

A competitive tax system will strengthen Canada’s ability to attract jobs and investment. After a decade of progress in reducing the tax burden on business investment, Canada has recently fallen behind in tax competitiveness. In 2012, according to the Global Tax Competitiveness Report, our country had the 19th highest tax burden on new business investments among 34 OECD countries. By 2014, Canada ranked in 14th place, in large measure because other countries had instituted significant reforms.

By simplifying and modernizing the tax code, Canada could spur new investment, promote job creation and significantly reduce the cost to governments of administering the tax system. The overarching objective of reforms to the tax system should be to reduce preferences, broaden the tax base and lower rates to position Canada as a global investment destination.

Let me conclude by underlining that in this uncertain economic environment, prudent fiscal management can set Canada apart from other advanced economies, creating a stable environment for business investment and job creation. While running deficits in the short term can help stimulate growth, we recommend that the federal government set a goal of achieving a 25 per cent debt-to-GDP ratio by 2021. Among other benefits, this would bolster the government’s capacity to respond in the event of another serious global downturn, while addressing the long-term challenges of an aging population.

I would be happy to answer any questions you may have.

Thank you.


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