'I fear for the Canadian economy' if competitiveness doesn't improve: Peter MacKay
OTTAWA -- The federal government will roll out an update to its fiscal plan Wednesday to help Canada compete for investment dollars following major American corporate tax reforms -- but it's up for debate whether Canada is facing a serious investment challenge.
The business community has called on federal Finance Minister Bill Morneau to respond to the Trump administration's tax and regulatory overhaul with significant changes of his own in Canada --including corporate tax cuts.
The government, however, has signalled it will be focused on targeted measures to attract investment, rather than broad-based corporate tax reductions that would lower federal revenues by billions of dollars per year.
Wednesday's much-anticipated fall economic statement arrives after months of debate about whether Canada has lost its edge as an investment destination, and by how much.
Morneau has heard many warnings from the business community that American tax reforms will have a big, negative impact on investment here. But some experts insist the country has performed well even after the U.S. overhaul.
Economist Randall Bartlett said investment in Canada has been pretty strong through the first part of 2018 and he believes it's difficult to draw a direct link between the country's performance and the U.S. tax changes.
"It's one of those things where I feel everyone's interpreting the data the way they want right now," said Bartlett, who works for University of Ottawa's Institute for Fiscal Studies and Democracy, headed by former parliamentary budget watchdog Kevin Page.
"If it's up, it's because we don't need to cut corporate income taxes. If it's down, it's because we need to cut corporate income taxes to compete with the U.S. Everyone's just cherry-picking for whatever side they want to land on."
Brett House, deputy chief economist for Scotiabank Economics, said Canada has seen broad improvement in both resident and non-resident foreign direct investment numbers. At the beginning of 2018, foreign direct investment reached its highest level in three years, he said.
"I think the notion that Canada has become a pariah state for foreign investment is just at odds with the actual data," House said.
He added that a lot of academic and policy literature implies that tax rates are not the "be all and end all of criteria of where to locate investment" when it comes to business decisions on research, supply chains, assembly and production.
"Tax rates are one of the issues that contribute to that decision, but it's by no means the only one."