Wednesday, October 17, 2007

Creating a Canadian Corporate Advantage - Dion speech to the Economic Club of Toronto

Excerpt from Oct 12 Speech:

Our fourth priority for the Speech from the Throne is a plan to create a strong Canadian economy. And…surprise, surprise that is what I want to talk to you about today, here at the Economic Club of Toronto. How to generate more investment, higher living standards, and good jobs for ourselves and our children. I want to thank the Economic Club for giving me the opportunity to talk about this issue.

We need this plan, especially given the fact that the Harper government has done more harm than good to Canada’s competitive position.

They are in the process of squandering $12 billion per year to pay for their two point cut in the GST, money that could otherwise have been used far more productively.

Their original interest deductibility proposal was a frontal attack on the competitiveness of Canadian companies and denounced as the worst tax policy in 35 years. As reported in the press yesterday, their new version of interest deductibility will still cost Canadian companies billions and will serve mainly to enrich foreign governments. It is beyond belief. The Prime Minister has not listened to common sense. It is not too late for him to do so.

We expect the Speech from the Throne to address economic measures including infrastructure, post secondary education, research and development, the manufacturing sector, labour market shortages and middle class tax relief.

But today, I want to talk about an important policy I believe Canada needs to create more investment. To create rising living standards. To create the jobs of tomorrow in the Canada of today. To create a competitive tax system. To create a Canadian corporate advantage.

I am talking about the necessity to further reduce the federal corporate tax rate, deeper than has been already announced.

The previous Liberal government reduced the federal corporate tax rate from 28% to 19%. The Conservatives took the “bold step” of going further…to 18.5% in 2011. I would go deeper than that and I will tell you why.

My conviction that corporate tax cuts must be on Canada’s economic agenda has been strengthened by a process of consultation with parliamentary colleagues, workers and Canadians who want better jobs for themselves and their children. I am convinced that a further reduction in the corporate tax rate cut is the right thing to do.

My conviction has been reinforced by what I have heard from experts and business leaders at round tables and other forums across the country. I am thinking in particular of the outstanding Montreal conference of September 10th where experts and business leaders seemed to speak with one voice – but in both official languages! - a lower corporate tax rate is a powerful weapon in the federal government’s arsenal to generate more investment, higher living standards and better jobs.

It is true that business leaders I have spoken to have also called for an extension of the Accelerated Capital Cost Allowance for manufacturing and processing industries. This is especially true with a Canadian dollar at par. It has never been more affordable for Canadian businesses to invest in new machinery and equipment. But today I will focus on the corporate tax.

I will give you three reasons why we must deepen the cuts to the corporate tax rate. It is a good economic policy as such within the Canadian economy. Second, it will help us compete with other countries. Third, it will strengthen our economic sovereignty. Let’s develop these three points.

It is a good policy for an economy like Canada’s. Why? Because living standards are driven mainly by productivity. Productivity is driven mainly by investment. How, for the sake of good jobs and rising living standards, can we encourage Canadian companies to increase their investments?

The answer is simple. If you lower the corporate tax rate, you lower the cost of capital for Canadian companies. Therefore, these companies are induced to spend more on capital equipment.

It is important for Canada to increase capital spending. Right now we are not doing very well. In fact, Canadian companies invest $1600 per worker less than US firms and $700 per worker less than the OECD average.

This brings me to my second point, competing with other countries. Today the Canadian dollar is at around par with the United States. A low Canadian dollar was at best a mixed blessing, but it did create a competitive advantage for our exports and an inducement for companies to locate in this country. How, for the sake of good jobs and rising living standards, can we create a new Canadian advantage that relies on something other than a weak currency?

By now it is clear that my answer is to create a new Canadian advantage based on a lower corporate tax rate.

Some may question why Canada needs a specific advantage to win in global competition. The answer is that every country seeks an advantage and that Canada especially needs one given the fact that our neighbour is the world’s largest economy.

As a destination for investment in North America, Canada is not top of mind. As the world’s only superpower, the United States is always top of mind. So we need a big hook to snare investment, including Canadian investment, that might otherwise go south of the border.

We already have some good arguments for investing in Canada – for example, our skilled work force, our internationally respected status as a nation, our successful multicultural and bilingual society. But corporations are oriented to the bottom line, and one of my biggest hooks as a future Prime Minister would go straight to the bottom line: come to Canada and you pay a much lower corporate tax than in the United States.

How would the United States react to this Canadian advantage? It could after all match Canada’s corporate tax reduction. But here’s a case where Canada’s small size is an advantage. If Canada creates a big corporate tax gap vis a vis the United States, there is unlikely to be any reaction south of the border. We’re under the US radar screen because we’re small.

My third and final argument for a lower corporate tax rate is that it would strengthen Canadian companies against foreign takeover. We want our companies to be predators rather than prey. The best way to do that, for the sake of good head office jobs and other benefits, is to strengthen our companies by taxing them less. It lowers their cost of capital. It better equips them to take on the world.

To conclude, let me sum up the argument. A key competitive advantage for Canada used to be our weak currency. Now that our dollar is at par, and we have lost this weak currency advantage, a key advantage must be a competitive corporate tax rate.

A tax advantage is better than a weak currency advantage. I can’t think of a country that has succeeded on the basis of a weak currency. But I can name several countries, including Sweden, Denmark, and Ireland, that have done very well by creating a low corporate tax environment.

I would much rather be the Prime Minister of a country that grows investment and good jobs through a competitive tax regime than a country that aspires to greatness through a devalued currency.

Some will say that a cut in corporate taxes is a right wing policy. I’m sure my friend Jack Layton will say this. But to believe this is to believe that Sweden, with its low corporate tax rate, is the hot bed of neo-conservatism while the United States, with its very high corporate tax rate, is a socialist paradise – or to quote Stephen Harper when he described Canada – “a second tier socialistic country”. A low corporate tax rate is not a right wing policy or a left wing policy. It is a sound policy.

The world does not owe Canada a living. For a richer, fairer, greener Canada we need to create a Canadian corporate advantage. We need a more competitive Canada.

Read the complete speech