Letter sent by Goldy Hyder to The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, ahead of Budget 2023
The Business Council believes that tax policy is a powerful tool for attracting and retaining investment and that a competitive tax system can act as a magnet for both capital and highly skilled workers, fueling labour productivity and economic growth. Business leaders share the view that Canada’s tax policy needs to be anchored within an overall vision of creating sustainable economic growth and improving the country’s lagging productivity.
Canada’s recent tax announcements in specific sectors, such as banks and insurers, and specific products, such as cars, airplanes and boats, have reduced our overall tax competitiveness vis-à vis our competitors. In the post-pandemic era, countries around the world are competing harder than ever to attract capital, and those with money to invest will have many options.
We are also deeply concerned with the government’s intentions to tighten limits on deductibility of interest when businesses borrow to invest. Such measures could discourage investment and detract from the business community’s ability to support Canada’s climate plan, which will require an unprecedented level of investment towards large transformational projects that support decarbonization and the expansion of Canada’s clean electricity grid.
Of equal concern is your government’s intention to introduce a new tax on share buybacks by public corporations in Canada. Moving hastily to tax share buybacks can interfere with the efficient movement of investment capital throughout the economy and will compromise the savings and pension plans that many Canadians rely on for their retirement.
In last year’s budget you flagged that a dangerously low productivity growth forecast is facing Canada. Since then the Organization for Economic Co-operation and Development (OECD) has come forward and ranked Canada last in potential economic growth over the next 40 years. If that OECD forecast becomes reality, the Canada of 2060 will be relatively poorer and will fall further behind other advanced economies.
Economic recovery from the pandemic will be uneven and challenging, so now is not the time for tax increases. Canada’s taxes on corporate profits and payroll are already amongst the highest in the OECD when measured as a share of Gross Domestic Product (GDP). Germany, the United States, the United Kingdom, France, Australia, Sweden and Denmark (among other countries) all collect less than Canada in corporate taxes as a share of GDP.
For this budget we urge you to ensure that Canada’s tax regime remains competitive and recommend that you:
- Recommit to the principle of tax neutrality and commit to a firm sunset date for the Financial Institutions Tax to give investors confidence that Canada is committed to attracting investment;
- Ensure that Canada’s Excessive Interest and Financing Expenses Limitation (EIFEL) regime encourages investment by exempting large infrastructure projects that align with Canada’s net zero strategy;
- Eliminate the proposed share buyback tax so that it preserves Canadians’ retirement savings;
- Allow companies to take full advantage of the Accelerated Investment Incentive by preserving the current rate for three more years and delaying its phase-out to 2027; and
- Respond effectively to the competitive challenge of the U.S. Inflation Reduction Act with commensurate measures to support industries and technologies that will enable domestic decarbonization and position Canada for international success1.
Faster growth of productive capacity in Canada will help lower inflation, yield higher living standards, and reduce the risk of a recession. Our view is that the government can do more to increase the country’s productive capacity. It can free up resources for more productive uses by spending less and can encourage investment by keeping taxes low, neutral and stable.
As always, Canada’s business leaders stand ready to work with you and other policymakers to ensure sustainable, long-term economic growth that benefits individuals and families in all regions and in all walks of life.
Mr. Michael Sabia
November 8, 2023
November 3, 2023