Suchergebnisse

Canada is already at a disadvantage with lagging growth and productivity even before the massive economic destruction caused by the COVID-19 pandemic. Before the pandemic hit, Canada's corporate tax system was already becoming uncompetitive in attracting highly profitable investments relative to other developed countries. Canada's general corporate tax rate, averaging 26.1 per cent, is within spitting distance of the highest rates inthe OECD. While some industries may benefit from special preferences, the corporate tax has become increasingly inefficient and complex with targeted measures, and in some cases impeding the allocation of capital to growth industries like communications and services. This was having a serious effect on Canada's economic health before COVID-19. Business investment in Canada has lagged that of many countries since 2015, well before the pandemic. Productivity has been weak and wages for workers have been depressed, particularly for unskilled labour. Additionally, the corporate tax system currently distorts the allocation of capital in the economy, favouring some sectors over others. In fact, some of the sectors least-favoured by the tax system — including retail and tourism, which face an eight-point tax disadvantage compared to the government- favoured manufacturing sector — are the very ones that had the roughest time during the pandemic and face a more difficult road to recovery. If Canada is going to "build back better," as some politicians claim to want, it will need investors willing to build things. That will require governments focusing on policies that stimulate economic growth, including tax reform. While it is politically popular for some parties to push for higher corporate tax rates, that won't solve our investment problem. Some limited benefit can be realized by reducing tax rates and broadening the corporate base elsewhere but Canada's unwieldy corporate income tax has become too serious for those measures to sufficiently address the problem. A broader approach to corporate tax reform will be required to ensure that Canada is able to recover to good economic health after the COVID-19 pandemic.

When it comes to corporate tax policy, Alberta is taking a different path than the federal government and other provinces. Alberta's May 28th Job Creation Tax Cut will reduce the provincial corporate income tax rate from 12% to 8% in lieu of introducing accelerated depreciation that was adopted by federal government November 20182 , including a 100% write-off for clean energy and manufacturing.

Following the 2017 overhaul of the U.S. corporate and personal tax system, 2018 has seen much discussion regarding Canada's diminished tax advantage and its attractiveness as an investment destination in comparison to the U.S. In the November 21st 2018 Economic Update, the federal government's response was finally unveiled. The central policy included a generous temporary accelerated capital cost allowance. This strategy largely follows a plan of action championed by the Canadian business community and emulates features of the U.S. corporate tax reform. However, as we point out below, tinkering with depreciation schedules distorts further the corporate tax system and fails to deal with other competitive issues that can only be addressed by changes to the statutory corporate income tax rates.

It can be easy for Canadians who appreciate the qualities of their country to overestimate the power that it also has to lure investment in a world where so many other destinations are competing for capital. Canadians can take pride in our political stability and our highly educated workforce, and we do have good communication and transportation infrastructure, but a great number of other countries offer those things, too, at roughly the same level. Meanwhile, Canada suffers in the eyes of investors for being a relatively small market, distant from large export destinations, with a cold climate and geographic vastness that only raise the cost of doing business here. Canada has been able to overcome its disadvantages in recent years largely by being highly competitive on business taxes. Unfortunately, the tendency of Canadian provincial and federal governments lately to raise taxes on business has been rapidly erasing that slight advantage. Dangerously, Canada is beginning to lose its competitive edge. It is difficult enough in a world of slower global growth to attract investment, but some major economies with whom Canada directly competes for investment have recognized the need in this challenging environment to make themselves even more attractive to investors. It is true that some countries, such as Belgium, Chile, Brazil, Greece and India have, like Canada, enacted certain policies — primarily higher business taxes — that have increased their marginal effective tax rate (METR). Still, other important peer countries have been working to lower theirs; notably Denmark, Japan, France, Portugal, Switzerland and the U.K. As a result of their cuts, and because of changes to policies in Canada that have increased METRs here, Canada has sunk from having the 16th-highest burden on capital in the OECD (which was at least in the middle of the pack) to having the 13th highest. We now have the sixth-highest rather than lowest METR in the G7. In a compilation of 92 countries, Canada finds itself in the middle of the pack with the 35th highest tax burden on capital. The blame for this is shared by provincial and federal governments. In recent years, governments in Newfoundland and Labrador, New Brunswick, Alberta and B.C. have all raised business taxes (Alberta now has a higher corporate income tax than B.C. Ontario or Quebec). Quebec has scaled back incentives for investors, Manitoba increased its sales tax, and B.C. eliminated the harmonized sales tax, reintroducing the burden on business inputs implicit in the provincial retail sales tax. With the U.S. election of Donald Trump and a Republican Congress promising to reduce corporate income tax rates, as well as the recent affirmation by British Prime Minister Theresa May to lower the U.K. corporate income tax rate to 17 per cent, the pressure will be to reduce, not increase corporate income taxes in the next several years. Should the U.S. dramatically reduce its corporate tax rate, Canada will lose its business tax advantage altogether. Just as concerning, Canada has created a tax system that discriminates against the service sector, including transportation, communications, construction, trade, and business and financial services, all of which are among the fastest-growing sectors, and play a key role in facilitating innovation, infrastructure and trade. Canada's tax policies continue to favour slower-growing sectors, namely manufacturing and resources. The good news is that Canada can regain competitiveness without drastic tax reform. It is clear that there needs to be greater neutrality among sectors so that service industries are not discriminated against (the same is true for large businesses versus small businesses). Meanwhile, those provinces that still have a retail sales tax can improve their attractiveness by moving to the HST, as other provinces have. The federal government is also in the midst of reviewing subsidies and other tax expenditures that create an unlevel playing field. However, instead of spending that money as it plans to, it should consider Canada's falling competitiveness and use the revenues to lower the corporate income tax. With the savings, it could afford to cut that tax from 15 to 13 per cent, not only remaining revenue neutral, but likely actually increasing the corporate tax base in the process.

It's time to consider a more economically efficient model for financing roads, bridges and other public infrastructure. It's true that Canada has become one of the biggest spenders on infrastructure among OECD countries, at four per cent of GDP, but using GDP to measure the share the government should spend on infrastructure is an anachronistic and arbitrary measure. We all know it is important that Canada keep pace with maintaining and building the necessary infrastructure to maximise our productive capacity and economic prosperity. But how do we know if we are on the right track? How much investment is enough, and what is the optimal level of public investment in infrastructure? This paper proposes a framework for evaluating current and future levels of financing for public infrastructure. Rather than relying on arbitrary comparisons with Canadas post war 'golden age' of infrastructure investment (an all too common standby in political circles), we propose a standard that is based in economic efficiency and which aims to maximise the public benefits associated with infrastructure investment. We also take a historical look public capital spending in Canada, as well as the trend toward privatization of public infrastructure and core services that began some 30 years ago after the Mulroney government was elected. This trend has seen many core services and assets that were once publicly run transition to outright privatization. It is interesting to note that the most heavily privatized sectors (utilities and communications) are also the sectors most often spared from the label of 'inadequate', a label that befalls so much of Canada's public infrastructure. When infrastructure is financed through taxation, there is a tendency for spending to be discouraged to ease the burden on taxpayers; however, this inevitably leads to infrastructure maintenance and construction being deferred, with a significant deficit inevitably built up. A user-pay model would work to eliminate political influence, create revenue for infrastructure renewal, and facilitate an optimal allocation of infrastructure resources. All of this further helps maximise the benefits derived from public infrastructure. This model of infrastructure finance and provision could be further advanced and reinforced through the creation of provincial and federal bodies whose mandate would be to actively evaluate infrastructure investments in their respective jurisdictions, prioritizing funding for the most meritorious projects, and those offering the highest public return on investment. When projects are funded through taxation and access is not priced, there is often little or no incentive for individuals to make efficient use of them. The lack of direct accountability means individuals fail to use infrastructure judiciously and sparingly to preserve the life of public assets or prevent unnecessary congestion. Moreover, the lack of a clear sense of cost means governments do not know the true value that the public places on one type of infrastructure over another. Thus, government budgeting for such projects remains inefficient and skewed. The best level and mix of public infrastructure can only be determined when government and private providers can reliably establish user demands in a priced (efficient) system. The current model of funding public infrastructure deprives users of infrastructure as well as government planners from vital information they need to make informed and efficient decisions. Both remain unclear on value for money, and costaccountability, but are bound by an innate aversion to increased tax-financing. Governments, fully cognizant of both consumer attitudes and the need to retain vote-getting power, thus swing between funding necessary infrastructure and allowing infrastructure deficits to grow. This paper advocates for a more efficient, accountable system with greater dependence on user-pay models and reinforced by and active arm's length government agency designed to advance merit based project selection, and maximise public benefit.

Canadians have heard a great deal of discussion in the national media about expanding the Canada Pension Plan (CPP), driven by concerns that many will retire without having made proper arrangements to adequately replace their incomes with pensions and savings. But the proposed remedies have been targeted at the retirement-income shortfalls potentially faced by relatively comfortable middle-class and well-off retirees. A far more pressing concern is the disproportionate vulnerability of one particular group: Single retirees living alone. The estimated poverty rate among seniors in Canada is among the lowest in the industrialized world according to the OECD. But elderly singles living alone face significantly higher rates of income inadequacy than their peers. Elderly singles are overwhelmingly female, and they are twice as likely to be below Statistics Canada's Low Income Cut-Off threshold than the general population, and four times as likely to be below the threshold as the elderly population as a whole. But the CPP policy ideas currently being batted around are unlikely to offer much help to this especially vulnerable group. Because females comprise roughly 70 per cent of elderly singles, and because of historically lower labour-force participation rates among females, a substantial portion of single elderly are entitled to few or no CPP benefits of their own (let alone other pensions), beyond the considerably reduced survivor CPP benefits collected by those who have been widowed. Survivor benefits, however, would not be available to the growing number of senior divorcees. Meanwhile, women tend to have longer life expectancies than men do, typically stretching retirement resources beyond what would otherwise be required for males. There are two relatively straightforward policy changes that could directly target benefits to help the single elderly living alone who are below the low income cut-off (LICO threshold). One is to modify the Guaranteed Income Supplement (GIS) top up strictly for elderly people living alone. Another would be to simply expand the CPP survivor benefit from 60 per cent of the deceased spouse's entitlement to 100 per cent. These policies are not without cost, of course. But the cost is not prohibitive. If the federal government were to allot $1.35 billion to these kinds of targeted policies, it could slash the number of single seniors living below the low income cut-off by half. With another $87 million, it could reduce the number by two-thirds. These amount, respectively, to just a 3.5 per cent and 5.8 per cent increase over current annual federal spending on elderly benefits. With Canadian policy-makers willing to spend resources and efforts on strengthening CPP benefits for relatively comfortable Canadians, it seems only appropriate that policies aimed at helping our most vulnerable seniors avoid poverty should come first.

Canada's roads, bridges, wastewater treatment centres and sewer systems are already past their prime. On average, and across the country, these key elements of municipal infrastructure are now past the halfway point of their useful lifespans. In the next 10 to 15 years, Canadian cities will face some very expensive bills for replacing critical infrastructure. But there are better means of funding needed infrastructure than raising local taxes or pleading with the provincial and federal governments for more transfers. A better solution, for many reasons, is user fees. Municipal governments have already managed to extract a great deal of infrastructure funding out of higher levels of governments. In the last 50 years, the portion of municipal revenues provided by federal and provincial transfers has increased from under 30 per cent to roughly 45 per cent, while the portion of revenues representing local property taxes has fallen from over 50 per cent to roughly 35 per cent. Yet, federal-provincial government funding is a seriously flawed means of funding local infrastructure. Money gathered at the federal and provincial level is placed in municipal coffers, breaking the chain of political accountability for the outcomes. This alters the spending priorities of municipal governments as they are inclined to favour those projects with federal or provincial subsidies attached. Such subsidies lower the political costs for local governments allowing municipalities to maintain artificially low taxes for their constituents by spending federal or provincial tax revenue. This is essentially having their cake and eating it too, and on a policy level, we are left to wonder how decision making surrounding municipal priorities is affected. These projects come at a discount to local governments, but not their constituents who will ultimately pay through federal or provincial income taxes. Most importantly, this kind of funding results in unpriced infrastructure access and contributes to the over-usage of infrastructure. It is only rational for residents to live further from work by taking full advantage of underpriced highways, bridges, transit and other infrastructure that someone else pays for, exacerbating congestion and commuting times in Canada's major cities. If Canadian cities are serious about replacing aging infrastructure and, just as importantly, alleviating the evergrowing problem of traffic congestion and urban sprawl, then cities must begin making proper use of user fees, and charging citizens for the use of the infrastructure they value. As it stands, while urban centres around the world increasingly embrace user fees, Canadians remain stuck in their old ways. Aside from international crossings, in 2012, Canada had only eight tolled bridges, and less than 0.25 per cent of Canada's paved public roads were tolled. In Alberta, across the five largest cities, user fees (combined with sales) only make up an average of less than 25 per cent of municipal program operational revenues. User fees would bring a predictable and dedicated revenue stream that would allow municipalities to responsibly take on the debt required to invest in much-needed infrastructure projects. Canadian city governments already have the tools they need to keep up with their pressing infrastructure needs; they need only find the creativity and political will to make use of them.