Canadian Senate Committee Calls On Government To Cut Tax

by Mike Godfrey, Tax-News.com, Washington

24 June 2005

A top level Canadian Senate committee has called upon the government to cut taxes for businesses and individuals as a matter of urgency in order to close the growing productivity gap between Canada and the United States.

The Senate banking, trade and commerce committee has urged the federal government to put in place a tax reform strategy by 2006 to stem the decline in the nation's productivity. The committee has suggested the 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," observed Liberal Senator Jerry Grafstein, the committee chairman.

The committee's report noted that a decade ago, Canada was almost equal to the United States in productivity, but now trails 15% behind the US in terms of productivity per worker. An OECD report has also noted that Canada has slipped to 18th in the league table of productivity growth, down from a peak of 5th in the 1950s.

"Here, we tend to punish success," commented Conservative Senator David Angus.

"You make a big score on a new productive business with a new invention and something really exciting - boom - that money is all gone in tax and there's not enough money to attract the people to stay here in Canada," he added.

Senators urged Ottawa to set up a productivity watchdog to be known as the Forum on Productivity, which would be charged with measuring and reporting Canada's performance.

The committee's report comes soon after Prime Minister Paul Martin survived a series of crucial confidence votes in the House of Commons, meaning that an amended budget with corporate tax cuts and extra social spending will now probably go through.

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