Another wake-up call for Canadian governments to improve investment climate
Suncor, one of the country’s largest energy companies, recently gave Canadian governments what should be a piercing wake-up call. CEO Steve Williams said his company won’t tackle any new major projects in Canada and his company will generally invest less. Williams singled out Canada’s uncompetitive tax and regulatory regimes as the reason, noting “Canada needs to up its game.”
Williams isn’t alone in this assessment. A recent survey of business leaders found that 64 per cent thought Canada’s investment climate had worsened in the last five years, owing partly to the growth in the tax and regulatory burden. There’s little doubt that policy actions by both federal and provincial governments have damaged Canada’s attractiveness for investment in recent years.
First, consider the rise in taxes. Four provinces have increased their general corporate tax rates over the last three years, including British Columbia and Alberta. And Ottawa recently raised taxes on entrepreneurs and small businesses and spearheaded a payroll tax hike to be phased-in starting next year.
The federal government, along with several provinces, also hiked personal income tax rates on skilled workers. In fact, the combined top personal tax rate exceeds or is close to 50 per cent in every province, and Canada now has among the highest top personal income tax rates in the industrialized world. This undermines the investment climate because it makes it harder for Canada to attract and retain the highly skilled workers and entrepreneurs businesses need to succeed and grow.
Finally, both businesses and individual Canadians will be hit by the federally-imposed $50 per tonne carbon price, undercutting investment attractiveness, particularly given that the United States has eschewed federal carbon pricing.
Canadian governments are also increasing regulatory barriers to investment, particularly in the energy sector. For instance, while Ottawa has committed to a set timeline for approving projects, with recently announced changes to the National Energy Board, it’s also creating new hurdles for investment such as a “gender” impact review. More broadly, more stringent and prescriptive labour regulations in Ontario and Alberta—with B.C. likely to follow suit—have discouraged investment.
This is just a sampling of the self-inflicted wounds that cumulatively strike a powerful blow to the country’s investment climate. But the issue has become more urgent with developments in the U.S. that harm two of Canada’s key advantages—competitive business taxes and access to the U.S. market.
President Trump’s sweeping tax reform has wiped out Canada’s nearly two-decade long business tax regime advantage—with the U.S. now gaining an advantage on the overall tax rate on new investment. According to University of Calgary economist Jack Mintz, the U.S. overall tax rate on new investment has nearly halved from 34.6 per cent to 18.6 per cent, and for the first time in decades sits below Canada’s rate of 21.6 per cent.
Canadian governments have responded with complacency. Prime Minister Trudeau signalled in his recent Davos speech his government’s intention to do nothing in response.
Canada’s favoured access to the U.S. market is also at risk due to ongoing and contentious NAFTA renegotiations. Regardless of the outcome, uncertainty surrounding the agreement dampens investment.
Simply put, Canada can no longer afford self-inflicted wounds in the form of higher taxes and increased regulations that discourage investment. Canadian governments should reform policy to improve—rather than weaken—the country’s investment climate.
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