Business tax cuts seen as key to Canada's competitiveness

CALGARY, 28 May 2010 -- Canada is on its way to becoming more competitive than the United States, but only if Ottawa continues to reduce corporate taxes, according to a new report by the School of Public Policy at the University of Calgary.

As federal and provincial corporate tax reductions happen, in particular when British Columbia and Ontario harmonize their sales taxes with the federal GST, Canada will become even more of a haven for investors, author Jack Mintz said Wednesday.

A further three-point reduction in federal corporate income tax rates could attract $49 billion in new capital investment and create almost a quarter of a million jobs, Mintz said.

"The main point is when you're out there trying to attract foreign direct investment dollars, it's really where people are making marginal decisions," he told the Herald.

"That they look at Canada as a really good environment for investment, we're going to draw more dollars."

The study compared Canada against 79 countries using effective tax rates on new investments, or the marginal effective tax rate, including nations such as Finland, Hungary, India and Belgium.

Since 2005, when it ranked as the fourth-highest taxed country, Canada has moved to 10th on the strength of federal business taxes that dropped to 31.3 per cent last year.

The federal Conservative government has planned to reduce corporate taxes to 25.7 per cent by 2013, a move opposed by the Liberal and New Democratic parties, concerned that falling revenues will affect social programs.

"Don't get me wrong, I believe that Canada should be pursuing a competitive business tax regime," said Adam Legge, chief economist with Calgary Economic Development, "but we have to look at it more holistically, in terms of what actually drives a more fulsome capital and business investment decision."

Current economic pressures facing major and developing nations make cutting tax revenue questionable, Legge noted.

On a provincial level, Alberta already offers the most competitive tax regime in the country, with zero sales, payroll and capital taxes, noted Geoff Pradella, with the Calgary Chamber of Commerce.

"Capital is global and moves around in huge quantities with the push of a button," Pradella said. "That doesn't mean engaging in a race to the bottom, but we should be in that lower quarter."

However, from a technical perspective, it makes more sense to fund programs from consumer taxes, such as the GST, which is in plain sight and applied equally to all, said Robert Roach, with the Canada West Foundation.

"Every edge you can get is worth going after," Roach said. "But from a tax perspective, you really want to go direct to consumers as opposed to direct to the corporations, which is very, very, very unpopular. It's a case where the theory and the numbers tell a story that just doesn't play well politically."