Montreal, October 23, 2018 – Instead of announcing targeted measures to attract investment to the country in its next economic update, Ottawa should restore the competitiveness of Canadian businesses compared to their American counterparts by lowering the corporate income tax rate, shows a study published today by the MEI.
“We need to face facts,” says Mathieu Bédard, Economist at the MEI and author of the publication. “Our businesses are becoming much less competitive, and the United States is now a much more welcoming place for investors. If we don’t change course, our companies and our workers will suffer.”
Up until recently, the average combined corporate income tax rate was 39% in the United States, versus just 27% here. This clear advantage disappeared with the US tax cuts, which dropped the American rate to 26%, just below the Canadian rate. Deregulation efforts south of the border also make investment in the United States more attractive.
“Ottawa must restore the Canadian advantage and lower the corporate income tax rate in order to stimulate private investment, create jobs, and increase wages,” adds Mr. Bédard. “And we in Canada should know that a reduction of the tax rate does not necessarily entail a drop in tax revenues.”
Indeed, recent history shows that concerns about the government experiencing a loss of revenue are unfounded. From 2001 to 2012, Liberal and Conservative governments successively reduced the federal corporate income tax rate by nearly half. Despite this substantial reduction, tax revenues were maintained over time.
“This can be explained by the fact that the tax cuts led to more business investment and more economic growth, not to mention higher wages,” argues Kevin Brookes, Public Policy Analyst at the MEI.
Workers are actually those who have the most to gain from such a policy. Studies on the subject are clear: They are the ones who ultimately pay the largest part of this fiscal burden.
“If our public decision-makers still had doubts about the need to act now to restore Canadian competitiveness, the recent fiscal changes in the United States should have erased them. The first to pay the price of fiscal inaction will be Canadian workers,” concludes Mathieu Bédard.
The Economic Note entitled “Restoring Canadian Competitiveness by Reducing Corporate Taxes” was prepared by Mathieu Bédard, Economist at the MEI, with the collaboration of Kevin Brookes, Public Policy Analyst at the MEI. This publication is available on our website.
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