Policy Initiatives

Lowering Business Costs

Overview

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 previous 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; and that the non-tax cost of doing business here is higher. Our 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

Meanwhile, tax reform south of the border has eliminated Canada’s previous tax advantage over the US and is threatening our competitiveness even further. That tax advantage was critical because it helped to compensate for the fact that we are a smaller, less attractive market; and that the non-tax cost of doing business here is higher.

SOLUTIONS

  • 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.
  • Doing so requires developing 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 should 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.

CME REPORTS

ADVOCACY HIGHLIGHTS

Corporate Tax Reform

ISSUE

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 POSITION

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.