Canada needs to review its tax system for whether it needs to address U.S. reforms: OECD
The Organisation for Economic Cooperation and Development is warning that Canada risks being left behind in the global race for investment dollars if it doesn’t respond to U.S. tax reform, joining a growing chorus of voices that are sounding the alarm on the country’s competitiveness.
The OECD said in a report Monday that tax reform in the United States has made Canada a less attractive place to do business, and urged the Canadian government to reassess its own tax system.
“Canada’s nominal and marginal effective corporate tax rates were substantially lower than those in the United States, but this advantage has now effectively disappeared,” the OECD said in the report.
“The government should review the tax system to ensure that it remains efficient – raising sufficient revenues to fund public spending without imposing excessive costs on the economy – equitable and supports the competitiveness of the Canadian economy.”
The Paris-based group also said trade policy is the greatest uncertainty for the Canadian economy and early surveys show that those doubts are already hampering investment dollars.
“There would be further negative implications for growth if [the North American Free Trade Agreement] were terminated or alternatively a boost to investment if uncertainty were resolved under similar or increased market access,” the report said.
If NAFTA is terminated, the OECD estimates that potential losses would amount to about 0.5 per cent of GDP in the short term and 0.2 per cent of GDP in the long term.
Overall, the OECD expects the Canadian economy to grow 2.1 per cent this year and 2.2 per cent in 2019, declining from 3 per cent in 2017.