As the U.S. Congress considers sweeping tax cuts, Canada’s tax system is in danger of becoming increasingly uncompetitive -- and Ottawa may lack the political will to tackle the problem, according to Conference Board of Canada Chief Economist Craig Alexander.
“The bad experience the government has been having might actually deter them from doing more on the tax front,” he said, in reference to the recent controversy over the government’s tax plan for private corporations. “They might actually just want the business tax issue to go away.”
Meanwhile, U.S. President Donald Trump is pushing the biggest overhaul of the U.S. tax code since the 1980s, which would permanently slash the U.S. corporate tax rate to 20 percent from 35 percent.
As the global economy continues to recover more countries could be looking to follow the U.S. example and cut their tax rates, putting Canadian businesses at a greater disadvantage, said Alexander.
“We actually have to pay a lot of attention to tax competitiveness in Canada versus other countries and it’s not just the United States,” he said. “I think the balance of risks is that taxes in other jurisdictions are going to be coming down.”
Canada should be looking to cut corporate taxes and make targeted changes to improve business investment, according to a new Conference Board report, entitled “The Trump Shadow: The New Urgency of Business Tax Reform in Canada.”
Without substantial changes to business investment, the Canadian economy is unlikely to see annual growth above two per cent in the medium term, the report said.
“There’s a lot we could do to reform the tax system in Canada to improve our tax competitiveness and it wouldn’t be part of the discussion that we’ve had in recent weeks,” said Alexander.
If the federal government lacks the political will to address tax competitiveness it should look to establish a bi-partisan tax commission that could overhaul Canada’s code, he added.