IIAC: GET ON WITH PRO-GROWTH BUSINESS TAX REFORMS

TORONTO, Dec. 11, 2024 /CNW/ - Business tax reform is more critical than ever to spur capital investment, competition, productivity, and economic growth maintains the Investment Industry Association of Canada (IIAC) in a new paper titled Get on with Pro-Growth Business Tax Reforms.

Canada ranks 26^th overall among 38 OECD countries on business tax competitiveness, according to the Tax Foundation. Canada's average combined federal-provincial general corporate income tax rate is higher than the OECD average, and higher than the U.S. average combined federal-state rate. President-elect Trump has pledged to reduce the rate further. Also, Canada's marginal effective tax rates on new business investment vary widely by industry distorting the efficient allocation of capital by providing favourable tax treatment to some sectors over others.

By discouraging capital accumulation and productivity improvements, corporate income taxes  are the most harmful form of taxation for economic growth. Yet, Canada relies more heavily than our neighbours to the south and OECD countries overall on corporate taxes to raise revenue.

The imperative for action is clear:

• According to World Bank data, in 2023 real GDP per capita in Canada stood at approximately $55,800 compared to approximately $73,600 in the U.S. – representing a gap in living standards of $17,800.
• Canada's abysmal productivity is much to blame. Canada ranks 18^th in productivity (GDP per hour worked) in the OECD (2022). In 1970, Canada was the 6^th most productive economy.
• Two factors stand out as contributing factors to Canada's dismal productivity performance – weak business investment and limited levels of competition.
• Total business investment in structures and in machinery, equipment and new technologies has declined by roughly $45 billion over the last decade in Canada, while in the U.S. it has continued to increase. Canadian workers are not as well equipped to do their jobs as their American counterparts.
• Additionally, more direct invest is leaving Canada than coming in. In the last 10 years alone, Canada has lost a net US$294 billion. Foreign direct investment facilitates the transfer and diffusion of technologies, knowledge, and managerial expertise, and promotes international trade, thereby contributing to a more dynamic, productive and competitive economy.

The IIAC calls on the federal government to:

• Reduce the federal general corporate income tax rate by two percentage points to make Canada a more attractive place to locate businesses and invest.
• Encourage the provinces that have yet to harmonize their provincial sales tax (PST) with the GST to do so.
• Re-balance Canada's tax system so it relies less on taxes that are most harmful to economic growth – i.e. income and profit taxes – and more on consumption taxes.
• Undertake an independent and comprehensive examination of the federal tax system, including a review of tax expenditures/preferences, to ensure it adheres to long-standing principles of good tax policy – neutrality, efficiency, simplicity, and competitiveness.

Read the paper online.

For media inquiries, please contact IIAC Public Affairs.

The Investment Industry Association of Canada (IIAC) delivers smart, efficient and effective advocacy for Canadian financial markets.

SOURCE Investment Industry Association of Canada (IIAC)

IIAC Public Affairs ([email protected])