Canada Must Keep Pace With US On Tax Cuts Warns Goodale

by Mike Godfrey, Tax-News.com, Washington

15 September 2005

Canada must forge ahead with its long term plan to reduce the level of corporate taxation or risk seeing companies and jobs slip across the border to the United States, which is continuing to seek further reductions in the tax burden on businesses and individuals, Finance Minister Ralph Goodale has warned.

Responding to threats from the National Democrat Party that it will topple the minority Liberal government of Prime Minister Paul Martin if it proceeds with tax cuts, Mr Goodale told business leaders in Quebec on Tuesday that the the country can no longer afford to ignore the issue of international tax competitiveness.

"Over the next five years, Canada's current tax-rate advantage vis-a-vis the United States will be almost totally eroded," Goodale said after a speech to the Conseil du patronat.

"This means there will be a natural tendency for investments and jobs to flow to the American side of the border," he observed.

Under plans presented in the 2005 Budget, the government wants to reduce corporate tax to 19% from 21% by 2010 and remove the corporate surtax by 2008. Under pressure from the left-leaning NDP, the minority government initially agreed to put the tax cuts into a separate bill whilst adding a further extra C$4.6bn ($3.7bn) in spending on items such as low-income housing, the environment and foreign aid. However, in June, the government survived a series of crucial confidence votes in the House of Commons, meaning that the tax cuts will probably proceed as planned.

Meanwhile, the Senate banking, trade and commerce committee has urged the federal government to put in place a tax reform strategy by 2006 to narrow the nation's productivity gap with the United States. The committee has suggested that the reforms should cut federal capital tax, corporate tax and individual tax for middle and upper-income workers. It also wants to see businesses allowed to write off capital investments more aggressively.

"That's not just that Canadian workers aren't working hard, the real issue is that there is not enough capital investment per worker in our economy compared to the United States. That all goes to the question of tax incentives," Liberal Senator Jerry Grafstein, the committee chairman, noted at a June meeting.

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