COMMENTARY: Canada’s becoming less competitive — and we need to change that, fast

By Rob Breakenridge Radio Host Global News

While we don’t need to … er, “make Canada great again,” we should be concerned about how we can make Canada competitive again (sans red MCCA hats).

There might not be a concise barometer for measuring a nation’s competitiveness, but it’s quite clear that we’ve undergone a considerable erosion. This would be a cause of concern even in much saner times, but with the uncertainty around NAFTA and the broader concern about escalating global trade tensions, it’s even more urgent to pull out all the stops in attracting and maintaining investment here.

READ MORE: Canada needs tax reform to boost competitiveness, OECD says

It’s not just about bragging rights or winning some kind of economic arms race. Rather, it’s about promoting economic growth and gains in productivity, which ultimately is going to drive job creation and wage growth. This is not some mere academic discussion.

Frankly, that sense of urgency should have manifested itself months ago. February’s budget largely ignored the question of competitiveness, focusing instead on “gender equality.” That’s not to discount the importance of gender equality, but it seemed as though the Liberals were more interested in political symbolism than tackling much more pressing economic challenges.

Five months later, though, Finance Minister Bill Morneau has had an awakening of sorts. In an interview last week from Buenos Aires, Morneau revealed that addressing Canada’s competitiveness challenges would be a major focus of the government’s fall budget update.

This is a positive change in direction, but it’s unlikely that the fall budget update is going to bring anything in the way of bold policy change. In fact, the most obvious and necessary change is the one we’re least likely to get: reduced corporate taxes.

READ MORE: Canada won’t be ‘impulsive’ in countering U.S. corporate tax cuts, Morneau says

If Morneau and Prime Minister Justin Trudeau stick to their previous intransigence on this question, then at least they can’t say they weren’t warned. This week, for example, the Paris-based Organisation for Economic Co-operation and Development issued a report warning about threats to Canada’s competitiveness and the potential value of addressing corporate tax rates.

While the OECD does forecast moderate growth for Canada (2.1 per cent this year and 2.2 per cent next year), there is considerable risk on trade, specifically the uncertainty around NAFTA and the negative impact that may have on investment. Coupled with the U.S. corporate tax cuts, it creates an imperative for the government to “review the tax system to ensure that it remains efficient.”

That call was echoed in a report last month from the Canadian Manufacturers and Exporters (CME), based on surveys of their members and consultations with a number of tax experts. They’re urging federal and provincial governments to lower the combined corporate income tax rate, to match the Americans’ accelerated capital cost allowance provisions, and to undertake a further review of Canada’s tax system.

READ MORE: Canada should lower corporate taxes to stay competitive with U.S.: experts

So while it might not be reasonable to roll out significant tax reform in a fall budget update, it would certainly be reasonable for the minister to announce a tax review in addition to whatever other measures he may be contemplating.

The Liberals are obviously leery about foregoing any revenue, given that their deficits have gone well beyond the “modest” deficits promised in the last election. And obviously, concern for deficits has evaporated in the U.S., with its budget deficit set to burst through the US$1-trillion roof next year. A comparable deficit here would be a nightmare.

Such concerns are therefore legitimate, but they shouldn’t tie our hands. A corporate tax cut could be offset by the revenue generated through the federal government’s forthcoming carbon tax, for example. Putting the GST back to seven per cent would be another option. Our taxation status quo is clearly not geared toward creating efficiency or encouraging growth.

READ MORE: Canadians could pay at least $1 per gram in weed tax, plus GST

Let’s not also ignore the fact that sagging growth and productivity comes with a significant cost, too.

On corporate taxes, Canada did previously have a competitive advantage, and that was due to both Liberal and Conservative governments. If we can find bipartisan consensus on the importance of saving NAFTA, then there’s no reason why we can’t find some bipartisan consensus on this issue, too. After all, the two go hand in hand: it’s all about creating confidence in Canada as a reliable and attractive jurisdiction in which to invest.

Let’s hope that this was the week where the tide finally turned.

Rob Breakenridge is host of “Afternoons with Rob Breakenridge” on Global News Radio 770 Calgary and a commentator for Global News.

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