Remarks to the House of Commons Standing Committee on Finance regarding the Budget Implementation Act, 2018

Date: May 10, 2018

Publication Type: Submissions

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Macroeconomic and Fiscal
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Remarks delivered by Brian Kingston, Vice President Policy, International and Fiscal 

 

Mr. Chair, committee members, thank you for the invitation to take part in your consultations on Bill C-74.

 

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 1.7 million Canadians, 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.

 

In the Council’s pre-budget submission we asked the government to introduce a comprehensive strategy to promote economic growth, encourage private investment and strengthen competitiveness. Among other recommendations, we called on the government to undertake a comprehensive review of Canada’s tax system with the goal of strengthening the incentives for investment and growth. Since then, the need for a comprehensive review has only been intensified by the controversy over the government’s passive investment proposals and the recently passed U.S. Tax Cuts and Jobs Act.

 

While we welcome the changes made to the passive investment proposals in Budget 2018, the government could have done more to address the root of the problem. Rather than lowering the small business tax rate further and restricting access to the deduction, the government should have eliminated the small business deduction altogether as part of a broader tax reform and simplification effort.

 

Regarding U.S. tax reform, we were disappointed that Budget 2018 did not address Canada’s serious competitiveness challenges. The U.S. now enjoys a Marginal Effective Tax Rate (METR) of 18.8 per cent, down from 34.6 per cent, and below Canada’s METR of 20.3 per cent. The relative tax advantage that Canada has enjoyed over the United States for more than a decade has been eliminated.

 

In a recent survey of 90 Business Council members, nearly two-thirds indicated that U.S. tax reform will definitely or probably influence their company’s future investment plans. Three-quarters of those surveyed are concerned or very concerned about the competitiveness of Canada’s business environment. This is an alarming finding at a time when direct investment in Canada has fallen to an eight year low.

 

Now is the time to act on the advice of the federal Advisory Council on Economic Growth, which in its final report called for a review of the tax system by an independent panel of experts. In the Advisory Council’s own words, such a panel should “consider changes to corporate and personal tax rates, the balance between types of taxes, and the use of tax instruments designed to support investment.”

 

Before I conclude I would like to comment on the fiscal outlook. We remain concerned with the government’s failure to set out a clear path to balance over the medium term. Between 2017 and 2023, the government expects to add nearly $100 billion to the federal debt, bringing it to almost three-quarters of a trillion dollars. Over the same period, the interest on the public debt is expected to grow by 36 per cent, more than double the growth rate of direct program spending.

 

While we share the government’s view that targeted investments in infrastructure and innovation create a foundation for long-term economic growth, we also know from experience that rising public deficits and debt only serve to undermine consumer and business confidence, with negative consequences for business growth and job creation.

 

Thank you for the opportunity to address your Committee.

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