By Business Roundtable (Business Roundtable Today)
Canadian Finance Minister Jim Flaherty last week released Canada’s 2013 federal budget document under the rubric, “Jobs, Growth and Long-Term Prosperity.” The document cited numerous examples of tax reductions that have made the country a more attractive place for investment, including the Harper government’s most prominent reductions:
Reducing the federal general corporate income tax rate to 15 per cent in 2012 from 22.12 per cent in 2007, eliminating the federal capital tax, and providing an incentive for provinces to eliminate their own general capital taxes (the last provincial general capital tax was eliminated in 2012).
Notable was the document’s discussion of reductions in the effective tax rate on business investment. Critics of business groups like BRT that argue for lowering the U.S. corporate tax rate claim that it’s not the statutory rate that matters, it’s the effective rate. Well, OK, then, let’s turn to page 159:
These actions [business tax cuts] are working to improve Canada’s overall business environment and tax competitiveness and have resulted in Canada having the lowest overall tax rate on new business investment in the G-7 (Chart 3.2.5). They are part of a policy framework that increases the productive capacity of the Canadian economy as well as Canadian living standards. Lower general corporate income tax rates and other tax changes have increased the expected rate of return on investment and reduced the cost of capital, giving businesses strong incentives to invest and hire in Canada. Low taxes increase the level of investment in the Canadian economy, while a more neutral tax system improves the allocation of this investment throughout the economy. The combination of a larger and a better allocated stock of capital will, in turn, increase Canada’s productive capacity and raise living standards.
And a chart:
Canada, we note, also operates a territorial tax system to encourage corporations to bring earnings in other countries back home to Canada. For more on corporate tax reform as an issue of global competitiveness, economic growth and jobs creation, please visit http://www.usahomecourt.org/ — the homepage for BRT “Campaign for Home Court Advantage.”