New Focus on Competitiveness is Welcome, but Canada Needs More Ambitious Strategy, Business Leaders Say

November 14, 2005

New measures on taxation, trade and innovation announced today in Finance Minister Ralph Goodale’s economic and fiscal update represent important first steps toward a more ambitious strategy for enhancing Canada’s productivity and competitiveness, says the Canadian Council of Chief Executives (CCCE).

“The package unveiled today moves the competitiveness agenda forward, but Canada must go further and faster if we want to maintain and build on Canada’s success within a rapidly transforming global economy,” said CCCE Chief Executive and President Thomas d’Aquino.

The CCCE, which is composed of the chief executive officers of 150 leading Canadian enterprises, welcomed several key measures that will contribute to a more competitive economy, including:

• Acceleration of the promised elimination of the federal capital tax by two years, to 2006 from 2008, in addition to the continuing commitment to legislate the corporate income tax cuts announced in February 2005;

• Promise of a new round of cuts in personal income tax rates, including an increase in the threshold for the top marginal rate to $200,000, although most of these cuts will not kick in until 2010;

• Commitment of $480 million over five years to an ambitious trade strategy that will expand Canada’s commercial presence abroad, in addition to previously announced projects to expand Canada’s Pacific gateway and border infrastructure;

• Additional investment to support research and development, the commercialization of new discoveries, greater access to post-secondary education and the more effective inclusion of immigrants and Aboriginals in Canada’s economic success;

• Continued commitment to fiscal prudence combined with a new target of reducing the federal debt-to-GDP ratio to 20 percent by 2020.

“The immediate challenge will be to see these good intentions implemented promptly, whatever the results of the next federal election.  The next step will be to create a truly compelling Canadian advantage within the global economy, a goal that will require measures much more significant than those announced today,” Mr. d’Aquino said.

He noted, for instance, that the fiscal update frames the government’s tax competitiveness goal as achieving “a meaningful marginal effective tax rate advantage over the United States within five years,” a target that will not be achieved by the tax cuts announced to date.

“As the C.D. Howe Institute has pointed out, Canada now has the second highest effective tax rate in the world, and creating a meaningful advantage means doing more than just bringing Canada’s rate marginally below that of the United States,” said Mr. d’Aquino.

“Canada is competing globally, and we need to look around the world in setting our competitive benchmarks.  Ireland has enjoyed stunning economic results by using corporate tax policy to create a compelling advantage in attracting new investment and jobs, while even a high-tax economy such as Sweden has an effective corporate tax rate that is only one third of that in Canada.”

The single most effective way to stimulate economic growth is to cut the corporate tax burden, and such measures are especially important at a time when Canadian manufacturers are facing increasingly intense competition from Asia, a rising dollar and higher costs for energy, Mr. d’Aquino added.

“Yet of the $30 billion in new tax cuts announced today, less than 4 percent of the total is going to corporate tax relief. Canada will have to do a lot better if it is serious about attracting more investment and jobs within a highly competitive global economy.”

The CCCE also continues to be deeply concerned about the overall pace of federal spending growth, noting that total spending will hit $200 billion a year by 2010.

Founded in 1976, the Canadian Council of Chief Executives is a non-profit, non-partisan organization dedicated to making Canada “the best place in the world in which to live, to work, to invest and to grow.”Member CEOs of the Council represent all sectors of the Canadian economy.  The companies they lead collectively administer close to $3.0 trillion in assets, have annual revenues of more than $650 billion, and are responsible for the vast majority of Canada’s exports, investment, research and development, and training.

In addition to Mr. d’Aquino, the members of the CCCE’s Executive Committee are: Chairman Richard L. George, President and Chief Executive Officer of Suncor Energy Inc.; Honorary Chairman A. Charles Baillie; and Vice-Chairmen Dominic D’Alessandro, Paul Desmarais, Jr., Jacques Lamarre, Gwyn Morgan and Gordon Nixon, the chief executives respectively of Manulife Financial, Power Corporation of Canada, SNC-LAVALIN Group Inc., EnCana Corporation and Royal Bank of Canada.