Fraser Forum

Competitiveness should be a top priority for finance ministers

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Serious concerns about the country’s competitiveness hovered above talks this week at the federal-provincial finance ministers meeting in Ottawa. Which is not surprising. Canada has become a less appealing place to do business due to higher taxes, new regulations and uncertainty over access to foreign markets. 

The list of made-in-Canada policies that have reduced our competitiveness is long and substantial.

For instance, most provinces and the federal government have increased personal income tax rates on professionals, entrepreneurs and business owners. Now, the top personal income tax rate exceeds 50 per cent in seven provinces with the remaining three provinces within a hair of 50 per cent.

In addition, large deficits in Ottawa and many provinces have created uncertainty about additional future tax increases. And despite the United States rejecting a national carbon tax, Ottawa continues to move forward with its plan for national carbon pricing, which will place several Canadian industries at a distinct disadvantage compared to our competitors.

To make matters worse, while the U.S. government has passed sweeping tax reforms to lower business tax rates, Canadian governments have done nothing to re-establish our tax competiveness.

The reality is that investors are taking notice of Canada’s uncompetitive tax rates and onerous regulations—particularly in Canada’s energy sector.

According to the Fraser Institute’s annual Global Petroleum Survey, which surveys upstream oil and gas executives, uncompetitive policies and regulatory uncertainty are largely to blame for our dwindling attractiveness. The survey spotlights policies that govern the oil and gas industry (royalties and taxes, duplicative regulations, etc.) and make a jurisdiction attractive or unattractive for investment.

The results show the investment climate in Alberta—Canada’s major energy-producing province—lags far behind 2014 levels when the province ranked 14th out of 156 jurisdictions worldwide. In 2017, Alberta ranked 33rd of 97 jurisdictions and was Canada’s second-least attractive jurisdiction to invest. Tellingly, more than 50 per cent of survey respondents indicated that fiscal terms (licences, royalties, etc.) and high taxation deter investment in Alberta. In addition, 70 per cent of investors cited the high cost of regulatory compliance as a deterrent to investing in Alberta compared to only 9 per cent in Texas and 24 per cent in North Dakota.

Subsequently, investment in Canada’s energy sector is rapidly declining. According to recent data from the Canadian Association of Petroleum Producers, Canada is no longer perceived as a reliable place for investment when compared to our international counterparts. Specifically, capital spending in Canada’s oil and gas industry declined by almost 50 per cent between 2014 and 2017 whereas comparable spending in the U.S. rose by 38 per cent over the same period.

Unfortunately, the erosion of investment in Canada is not limited to the energy sector. As shown by a recent analysis, Canada ranks second last among 17 industrialized countries for business investment.

Canada’s uncompetitive business environment should concern Canadian policymakers. Improving our competitiveness must take centre stage as the finance ministers decide whether to act on their discussions from this week.