Act Now on Tax Cuts to Keep Canada Growing Through Next Global Downturn, Business Leaders Say

November 4, 2004

A new round of federal tax cuts is needed to ensure that the Canadian economy can withstand the pressures of a rising Canadian dollar, more intense competition and a looming global slowdown, Canada’s business leaders say.

“In recent years Canada has enjoyed an extraordinary run of robust economic growth, but the good times will not last forever,” Thomas d’Aquino, President and Chief Executive of the Canadian Council of Chief Executives(CCCE), said in a speech today to a conference in Ottawa on Canadian international policy. The CCCE is composed of the chief executives of 150 leading Canadian corporations and is devoted to strengthening the country’s economy and society through the development of sound public policy.

Expressing deep concern about surging fiscal and trade deficits in the United States, growing protectionism, instability in oil producing states and the threat of global terrorism, Mr. d’Aquino called for a concerted strategy for enhancing Canada’s future economic growth.  “Smart tax policy is the key to sustaining and improving the quality of life of Canadians. It is also the most effective way for Canada to achieve a significant competitive advantage in the global struggle to attract business investment and jobs.”

Mr. d’Aquino’s call for a balanced approach to fiscal priorities – one that matches investments in social programs with measures to enhance future economic growth – was echoed this morning in the CCCE’s annual pre-budget submission to the House of Commons Finance Committee.

David Stewart-Patterson, the CCCE’s Executive Vice President, told the committee that Canada’s recent strong economic performance has driven up federal tax revenues and enabled the government to commit substantial new money to such priorities as health care and equalization, with further large sums promised for child care and urban quality of life. He cautioned, however, that “the economic cycle is not dead,” adding that now is the time to put in place policies that will help Canada cope with the inevitable return of tougher times.

“This period of healthy economic growth and government revenue represents an important window of opportunity,” Mr. Stewart-Patterson said. “While continuing to hope for the best, the government also must take active measures to plan for the worst, to ensure that its commitments to improving the quality of life of Canadians can be sustained through good times and bad.”

In its written submission to the Finance Committee, the CCCE said the most urgent tax policy issues are in the corporate sector. According to the Department of Finance, Canada now enjoys a modest corporate income tax advantage of 2.3 percentage points over the United States, as measured by the average combined federal/provincial and federal/state statutory rates. However, the effective corporate tax burden in Canada remains higher than that of our major trading partner once provincial capital taxes, sales taxes and less favourable write-offs for depreciation and inventory are taken into account.

At the same time, the sharp rise in the Canadian dollar is putting immense pressure on exporters, particularly in the manufacturing sector. The rapid pace of the currency’s appreciation is adding to the urgency of investing in new machinery and equipment to boost productivity and competitiveness.

“The choices that Canada makes on corporate tax policy will have a huge impact on how quickly Canadian enterprises adapt to a higher dollar and a more competitive global environment, and on the extent to which their responses maintain and add to employment in Canadian communities,” Mr. Stewart-Patterson said.

Recent Canadian and international experience suggests that lower corporate tax rates can actually generate higher revenues for governments by encouraging more business activity. On January 1, 2003, Canada reduced its corporate income tax rate by two percentage points, yet revenue from the tax rose by $5 billion or 23 percent in the 2003-2004 fiscal year. On January 1, 2004, the government cut the rate by another two percentage points, yet in the first five months of the current fiscal year corporate income tax revenues increased by a further eight percent.

The CCCE also supports further personal tax cuts, including increases to the basic personal exemption, reduction of income-tested clawbacks in child benefits, higher contribution limits for registered retirement savings plans and pension plans, creation of an additional tax-prepaid savings plan and an increase in the floor for the top personal income tax bracket to $150,000 from the current level of $113,804.

“In summary,” the CCCE said, “Canada needs to make sure that its tax policies are effective in making this country a place in which hard-working people can build better lives and want to invest for the future, and that offers compelling reasons for businesses from around the world to choose Canadian communities as their preferred base for serving customers across Canada and globally.”

In its submission to the Finance Committee, the CCCE also applauded the government’s commitment to a rigourous and ongoing process for the review and reallocation of federal spending. When the CCCE appeared before the Finance Committee in October 2003, its central recommendation was what it called the “5 percent solution,” an approach that would require each department to identify each year the least effective five percent of spending under its direction. This is the approach now being used to identify $12 billion in reallocation for the next budget, and Minister of National Revenue John McCallum said recently that the government intends to make spending review a permanent part of the annual budget cycle.

The CCCE is a non-partisan organization committed to helping make Canada the best place in the world in which to live, to work, to invest and to grow. Member CEOs lead companies that collectively administer more than $2.3 trillion in assets, have annual revenues of close to $600 billion and account for a significant majority of Canada’s private sector investment, exports, training and research and development.

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.