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Advantage Canada


By Tax-News.com Editorial
August 23, 2011


'Advantage Canada: Building a Strong Economy for Canadians', was the name of the long-term economic plan announced by Finance Minister Jim Flaherty in November 2006 which targeted the elimination of Canada's total government net debt within a generation while reducing taxes across the board. While the financial crisis may have knocked the government off course somewhat, much progress has still been made towards the latter objective.

At 16.5%, Canada's headline federal corporate tax rate is now one of lowest among the 'high tax' nations, having been reduced by more than 5% since 2007 (but there are still provincial taxes to reckon with, at least for domestic businesses). From January 1, 2012, the federal rate is due to fall to 15%, ensuring that Canada's overall tax rate on new business investment is substantially lower than that in any other Group of Seven (G-7) country.

In 2010, the government scaled back its tax cutting agenda. This was partly due to the less favourable economic environment and partly to the governing party's lack of a parliamentary majority. Appropriately enough, corporate tax cuts was one of the issues which forced a general election earlier this year, following which the Conservative were returned with a majority in the Commons.

With a stronger mandate, the government has resubmitted the budget which was voted down in March, and on August 16 released itsproposals for the introduction of a raft of new tax credits, many of which formed part of the Conservative party's election manifesto.

Nonetheless there are concerns that Canada's tax system is in need of simplification, rather than just lower rates of tax. Earlier this month, the Certified General Accountants Association said that the "overly complex" tax system imposes unnecessary and significant hidden costs on businesses and consumers. The Association is hoping that its study will stimulate discussion on the subject, and has said that with the economic recovery still very fragile, now is a good time to open such a dialogue.

Canada has also embraced the ideal of free trade, in contrast to the rather uncertain trade policies of the Obama administration to the south. Indeed, senior lawmakers on the tax and trade law committees in the US Congress recently expressed concern at the effect on American exporters of the entry into force of the Canada-Colombia free trade agreement (FTA) on August 15.

While the US Congress has been unable to ratify three FTAs signed under the previous administration, Canada has been busy attempting to tie up trade and investment deals with key trading partners. Last month, Canadian Minister of International Trade and Minister for the Asia-Pacific Gateway, Ed Fast, announced that significant progress has been made on an FTA with the European Union, with negotiations expected to conclude next year. It has been calculated that a Canada-EU FTA could boost Canadian GDP by some CAD12bn (USD12.5bn).

Substantial progress has also been made in talks towards an economic partnership agreement between Canada and India, and Ottawa is committed to completing these negotiations by 2013.This agreement could increase bilateral trade with India by 50% and boost the Canadian economy by a further CAD6bn.

Canada is also targeting other key emerging nations with its trade policy. Last week, Fast announced that Canada and China are to conclude a Foreign Investment Promotion and Protection Agreement. China is Canada's second-largest trading partner, on a country-to-country basis. Canadian government figures show that bilateral trade reached CAD57.7bn (USD60.1bn) in 2010, with such trade more than tripling between 2001 and 2010.

Key deals were also signed between Canada and Brazil during Prime Minister Stephen Harper's meeting with Brazilian President Dilma Rousseff on August 8, during which the two leaders announced the launch of the Canada-Brazil Strategic Partnership Dialogue. Trade reached CAD5.9bn between the two countries last year, and in 2010 Brazil was Canada's eighth largest foreign investor with CAD13.5bn in cumulative investment; Brazil was the 11th largest recipient of Canadian direct investment abroad, a relationship worth CAD9.7bn.

On the fiscal front, it is clear that the government is now finding it harder to balance the books, and the budget has slipped into deficit after several years of prudence had reaped successive surpluses, although tax revenue figures released in August show that the budget deficit eased somewhat in April and May this year.

It's a fact, though, that Canada is the only country in the G7 to have weathered the financial and economic crisis relatively intact, and without having to resort to an expensive bail-out of its banking sector. And while the government felt obliged to stimulate the economy through a combination of tax and spending measures, the country is not experiencing the same problems with debt as the US and many European countries. Canada's recent economic policies seem to be standing the country in good stead.


 

Tags: free trade agreement (FTA) | agreements | economics | budget | business | Canada

 

 

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