Prime Minister Mark Carney in Etobicoke, Ont., on Thursday. Carney said the upcoming federal budget will include measures to give Canada ‘a highly competitive’ corporate tax system.Laura Proctor/The Canadian Press
Prime Minister Mark Carney said the upcoming federal budget will include measures that give Canada “a highly competitive corporate tax system,” but stopped short of providing any details.
“We’re well aware of what the relative tax rates are in investment, and we will make sure that they are competitive in the budget,” he told reporters Thursday.
Mr. Carney was defending Canada’s competitiveness after comments made on Wednesday by Darryl White, the chief executive officer of Bank of Montreal, who told a gathering of business leaders that the country’s corporate tax system leaves Canada at a disadvantage at a challenging time for the economy.
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Speaking at the Toronto Global Forum, Mr. White said, “Are we competitive on tax? I know the answer to that is, ‘Absolutely not.’”
Mr. White had said U.S. President Donald Trump’s trade and investment policies have created uncertainty for Canadian exporters and that Canada should “not let the crisis go to waste.”
While the trade file is dominating Canadian policy discussion at the moment, “there are things we can do that can overwhelm the trade file with tax incentives,” he said. “We have a little bit of fiscal capacity to play with here.”
That view was backed up by the International Monetary Fund, the head of which on Thursday said that unlike most other G7 countries, Canada has room to expand the deficit to make productivity-boosting investments.
“Both Germany and Canada recognize that in this very testing time, they need to use their fiscal space,” said Kristalina Georgieva, managing director of the IMF at a press conference.
She made no mention of Canada’s corporate tax competitiveness, but said areas that Ottawa has identified for investment, including housing, infrastructure and energy, are needed to boost the country’s weak productivity.
Mr. Carney said the budget will maintain Canada’s “broad brush” approach to personal income taxes and “the balance of the social model” but suggested more attention will be given to competitiveness on the corporate tax front going forward.
He pointed to one of his government’s first decisions after taking power to cancel a planned increase to the capital gains inclusion rate, an unpopular measure that had been put in place by the previous Liberal government of Justin Trudeau.
Calls for tax relief have grown louder as Nov. 4, the date set for the budget to be tabled in Parliament, approaches. This week KPMG released the results of a survey of 501 Canadian business leaders that found nine out of 10 want Ottawa to deliver tax relief.
Even so, Canada’s own budget watchdog has sounded the alarm over swelling deficits. Last month, Canada’s interim parliamentary budget officer Jason Jacques warned that the fiscal path Canada is on “isn’t sustainable” after delivering a report projecting the federal deficit will grow to $68.5-billion in 2025-26 from $51.7-billion this fiscal year.
The PBO’s estimate did not include platform promises the Liberals ran on in the spring election. When those promises are included, along with increased defence spending, a report from the C.D. Howe Institute pegged the deficit at $92.2-billion.
Meanwhile, National Bank of Canada chief economist Stéfane Marion earlier this month predicted a $100-billion shortfall.
However, Canada’s former parliamentary budget officer, Kevin Page, disagrees with that assessment. In a piece published in Policy Magazine this week, he called the current environment of uncertainty a “hinge moment” that requires significant taxpayer resources to address, adding there is “no fiscal crisis” in Canada.
With a report from The Canadian Press
Editor’s note: A previous version of this article incorrectly paraphrased BMO’s CEO, Darryl White, as saying there is a risk in Canada being too focused on reducing deficit spending. He did not specifically reference deficit spending in his comments. This article has also been updated to clarify that Mr. White made the comment: “Are we competitive on tax? I know the answer to that is, ‘Absolutely not.’”