CME is helping make your business more competitive by working to lower your tax burden, simplify regulations and, reduce the non-tax cost of doing business in Canada.
A competitive business environment is critical to the long-term success of the Canadian economy. Good tax and regulatory policy encourages capital spending, attracts foreign direct investment, and drives export growth.
However, Canada’s business environment has been gradually deteriorating in recent years. A wide range of tax and regulatory measures are adding to the cost and uncertainty of doing business here at home. Meanwhile, tax reform south of the border has eliminated Canada’s tax advantage over the US and is threatening our competitiveness even further.
That tax advantage was critical for Canada because it helped to compensate for the fact that we are a smaller, less attractive market. That one advantage is now gone.
Why It Matters
Even when Canada did have a tax advantage over the US, it was clearly not enough to offset those other cost gaps. Our businesses have been struggling to compete globally and foreign investment is passing us by:
- Capital investment growth in Canada since 2011 is two and a half times lower than the OECD average and more than three times slower than in the US.
- FDI flows into Canada in 2016 were down by 50 per cent compared to the prerecession average in 2005-2007. Meanwhile global investment flows increased by 20 per cent and investment in the US was up more
than 110 per cent.
- Canada’s manufactured goods exports are growing at less than the rate of inflation and our trade deficit in manufacturing has ballooned to a record $136 billion.
- In 2013, US businesses invested $40.6 billion in Canada, while $25.7 billion of Canadian capital flowed south. By 2017, US investment in Canada had dropped by nearly half, while Canadian investment in the US has more than tripled.
These trends will only get worse unless Canada takes immediate steps to restore its tax advantage over the US.
Challenges & Solutions
Canada is already an expensive place in which to do business and costs are trending in the wrong direction. The challenges include:
- An overly complex and uncompetitive tax system
- Rising minimum wages and electricity costs in some provinces
- High telecommunications and air travel costs
- Corporate tax increases in some provinces
- A burdensome regulatory system
- The roll-out of a national price on carbon
- Proposed new Clean fuel standard regulations
- The federal and provincial combined corporate tax rates should be immediately lowered from about 28 per cent to 20 per cent. The reduction should be evenly split between the two levels of government; and
- The Government of Canada match the accelerated capital cost allowance provisions now in place in the United States, giving businesses an immediate 100 per cent tax write-off on qualifying capital asset purchases.These immediate steps will help buy Canada the time it needs to pursue more fundamental tax reforms. Canada needs to reshape its entire tax system to focus on encouraging investment, innovation and growth.
- Develop a tax structure that
- Encourages investment in productivity-enhancing machinery, equipment, software and technology;
- Attracts foreign direct investment to Canada;
- Encourages innovation and entrepreneurship;
- Rewards companies for growing, not for being small;
- Supports workplace training and upskilling; and
- Enables exports.
- However, such a tax system cannot be developed overnight. It requires thorough analysis, extensive consultations and meticulous planning and design. For this reason, CME recommends that the Government of Canada appoint a Royal Commission on Taxation chaired and staffed by tax and economic policy experts to review Canada’s tax system. The Commission should be tasked with making wholesale reforms that modernize and simplify Canada’s tax code. The overarching goal of these reforms should be to create a tax system that encourages innovation, investment and economic growth.
2018 MANAGEMENT ISSUES SURVEY
CME’s biannual Management Issues Survey (MIS) is CME’s most important tool for taking the pulse of the manufacturing community. It provides valuable insight into the mindset and concerns of manufacturers – both in terms of their day-to-day struggles as well as their longer-term strategic goals.
INDUSTRIE 2030 ONTARIO
Ontario manufacturers are at the forefront of global competition, innovation and technological change. To compete with the world’s best, they require a business climate that is equally world-class. Industrie 2030 Ontario is a roadmap to achieving the conditions manufacturers need to succeed.
Corporate Tax Reform
Canada used to rely on a competitive tax system to compensate for its high overall business cost structure. That advantage is gone. Canada needs fundamental tax reform to reduce the overall burden and complexity of the tax system, while also reshaping it to reward investment, innovation and growth.
IMPACT ON MANUFACTURERS
Canada’s high business costs and eroding tax competitiveness are creating significant challenges for Canadian manufacturers. Manufacturers are:
- Underinvesting in machinery, equipment and new technologies;
- Having difficulty competing in global markets;
- Delaying investments in new facilities and bumping up against capacity constraints; and
- Lagging their global competitors in productivity growth and innovation.
Most importantly, the tax system penalizes companies from growing beyond a certain size.
CME believes that Canada needs fundamental tax reform to restore our competitiveness and create the conditions needed for businesses to succeed.
Our immediate priorities are:
- to lower the headline corporate tax rate; and
- to improve tax incentives to invest in machinery and equipment.
The Government of Canada has introduced Bill C-69, a bill that would completely overhaul impact assessments in Canada. If passed, the bill would replace the National Energy Board (NEB) with the Canadian Energy Regulator and create a new Impact Assessment Agency.
IMPACT ON MANUFACTURERS
While the Bill intends to provide greater clarity and certainty on impact assessments, it will hurt Canadian manufacturers by deterring future investment in energy and resources development. Bill C-69:
- Requires unnecessary steps in the impact assessment process and in obtaining the approvals needed to be able to commence energy projects;
- Increases the regulatory burden and overall operating costs; and
- Creates confusion as to what is considered a “designated” project.
We support the need to streamline Canada’s impact assessment and approval process. However, Bill C-69 will make assessments and approvals more subjective, complex and uncertain. It will also discourage investment and create extra delays to get infrastructure projects built across Canada. We call on the federal government to:
- Clarify whether the bill intends to include upstream or downstream greenhouse gas emissions, and how federal carbon pricing regimes should be considered;
- Consider all cumulative impacts and conduct additional economic impact analyses;
- Ensure that the bill balances federal and provincial assessment needs to prevent unnecessary duplication; and
- Focus on the specific desired outcomes as it relates to the impact assessment process.
CLEAN FUEL STANDARD
The Government of Canada plans to introduce Clean Fuel Standard (CFS) regulations that will establish new life-cycle emissions intensity requirements on fuels used in transportation, buildings and industry. The goal is to reduce GHG emissions across Canada by 30MT by 2030.
IMPACT ON MANUFACTURERS
While it may reduce GHG emissions, a more stringent clean fuel standard would negatively impact Canadian manufacturers by: • Increasing the cost of combustible energy in industrial uses, • Increasing in transportation costs within Canada; and, • Creating a competitive disadvantage relative to global competitors subject to lesser standards. These impacts would be on top of those resulting from federal/provincial carbon pricing initiatives.
We support efforts to reduce GHG emissions intensity across Canada, but are concerned about the impact the CFS will have on Canada’s alreadyeroding business competitiveness. The CFS will add yet another cost to doing business and will further discourage investment in Canada. We call on the federal government to: 1. Complete a comprehensive economic analysis and modelling exercise; and, 2. Exempt all manufacturing fuels from the CFS. The CFS must not result in carbon leakage –whereby companies simply shift their production to other jurisdictions with less stringent regulations, a loss of manufacturing jobs, a weaker economy, or a net increase in global GHG emissions.
CARBON TAXES AND REVENUE RECYCLING
The Government of Canada is adopting a new federal carbon pricing backstop system consisting of the output-based pricing system (OBPS) for industrial facilities, and a fuel charge to fossil fuels. It will be implemented in jurisdictions that either request it, or that do not have a system of their own in place by the end of 2018.
IMPACT ON MANUFACTURERS
There is significant concern about the impact that the federal carbon pricing backstop will have on Canada’s economy and the business operations of manufacturers – particularly those in trade-exposed industries.
While the design of the system aims to limit the environmental impacts of individuals and business, it puts increased pressure on manufacturers to lower emissions, improve environmental performance to satisfy customer demands, and limit cost increases to maintain global competitiveness.
CME is calling for the revenue-neutral distribution of carbon pricing monies. Funds collected under the federal backstop system should be returned to the “person” (the company) to invest in projects that improve environmental performance and increase investment in emissions-reducing machinery, equipment and technologies.
We believe that federal carbon pricing backstop system must be balanced and cannot compromise economic growth, industrial investment, or the global competitiveness of manufacturers. The system must be designed in such a way so that companies receive access to funds directly in proportion to how much they pay in carbon taxes or cap-and-trade expenses.
COMMUNICATION WITH GOVERNMENT
- Letter to Ministers Rickford and Walker: Ontario Industrial Electricity Pricing, September 18, 2020
- Submission to Department of Finance on Aluminum Tariffs, September 3, 2020
- Remarks, Ontario Government’s Future State Modernization Committee, July 28, 2020
- Letter to the Prime Minister: Rail Blockades
- 2020 Ontario Pre-Budget Consultations Remarks
- Remarks: Senate Committee on Bill C-69
- 2020 Federal Budget Submission
- 2019 Federal Prebudget Consultation Submission
- 2019 Ontario Pre-Budget Consultations Remarks
- Remarks: Ontario Standing Committee on General Government on Bill 66, Ontario’s Competitiveness Act
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ONTARIO ENVIRONMENT POLICY INTEREST GROUP
This group is focused on issues including: approval regulations, air standards & air policy & programs, air monitoring & reporting waste regulation. An annual joint meeting is held with the Ministry of the Environment and Climate Change which will likely take place this year in September.