For Canada to be more competitive, we need bolder strategic tax policy

Canada’s businesses are second to none in many ways, but there’s still a missing ingredient — we need bolder tax policies that boost our competitiveness in a changing world.

In 2017, the World Economic Forum ranked us 14th in terms of global economic competitiveness. We could be doing better.

But our small and medium entrepreneurs (SMEs) and larger businesses are being held back. One of the biggest culprits is overly cautious tax policy that is not keeping up with worldwide realities today.

It’s not a matter of providing tax breaks for the wealthy or unnecessary corporate handouts. We don’t need that. 

It is a matter of recognizing that there is a pressing need for change, leadership and more strategic thinking about tax policy and its growing importance as a major criterion for businesses as they make investment decisions.

Businesses today are agile and have more choices. They can move operations, jobs, technology and growth anywhere in the world — digitally and physically — whenever they perceive conditions that are more favourable. 

Yet while businesses are able to move faster than ever, our policies seem to slog on at the same low speed. 

The newest federal budget, tabled Feb. 27, is a case in point. 

True, it makes a nod to tax competitiveness in some areas, such as recognizing the need to cut red tape and support female entrepreneurs. But that’s tinkering at the edges in a world where many of our competitors are overhauling their systems to meet 21st century challenges.

Our businesses, particularly SMEs, face daunting hurdles at home. These include increases in Canada and Quebec Pension Plan payments, higher minimum wages and coming rules for pricing carbon emissions. 

These are all the result of public policy decisions. Canadian businesses need corresponding tax policy decisions, to enable them to be competitive in the face of these higher costs, which not all our global rivals face. 

Our competitors are not standing still. The recent U.S. tax reform and the implications of ongoing trade disputes that may result in a full-blown trade war are serious: we need to go further than our newest budget does to address these changes. 

First, we have to recognize that we have a problem. Businesses are already making choices of whether or not to invest, and if they do choose to invest, where to do so.

Why Canada? Our tax policies should be geared toward answering this. 

We need policies that are clear and easy to follow, signal that we’re open for business and which keep our companies competitive with those in other countries. Our competitors are doing this now and we need to do it now too. 

We’re in a solid position to do better. Canadian SMEs manage to thrive a lot even in the absence of bold, forward-thinking tax policies. 

Our GDP has been healthy, there are some 1.1 million SMEs in Canada, providing six out of every 10 jobs and nearly 70 per cent of all private-sector employment. 

The Organization for Economic Cooperation and Development (OECD) says our SMEs are relatively innovative by global standards and peoples’ attitudes toward entrepreneurship are above average compared with others. 

But GDP and the size of the SMEs in our economy aren’t necessarily measures of our competitiveness. For years, Canada has relied on its proximity to the huge U.S. market, but as barriers increase, that’s not a strategy — it’s wishful thinking.

We need to replace wishful thinking with strategic thinking — a Canada tax strategy that supports business growth.

By the measures that do gauge competitiveness, we aren’t necessarily keeping up. We lag in productivity, and any corporate tax advantages our SMEs may have enjoyed until recently are disappearing quickly with U.S. and other international tax changes.

The future belongs to those who are fast. Governments need to be agile too, but so far they have been quite slow. 

Regulations, studies, committees and task forces are all important, but now it’s time for action, not more study. Decisions on tax policy that boost competitiveness need to be made now, not time frames geared to government institutions, but according to horizons that any business would consider reasonable. 

Canada’s great entrepreneurs don’t need freebies, they need opportunity. Productivity improves when healthy businesses invest in themselves. Tax policies should focus on helping to build an environment that encourages investing in technology, growth and people. 

Tax policy should reflect what works for Canadians — for the businesses they build and grow to create jobs and their ability to thrive and compete in a tough world. 

That also means that as part of a well-thought-out strategy, our tax policies need more certainty. 

SMEs and professionals such as doctors spent much of 2017 worried that the benefits offered to them previously would be taken away; admittedly the changes weren’t as severe as feared, but the lesson is that uncertainty is a job killer. Hard-working people are right to expect rules that are fair and not subject to constant change.

Future-thinking businesses today ask themselves: how can we be more relevant to those we serve? How can we invest for the future? Where’s the best place to invest? All of us in Canada should be asking the same questions, and we should expect those who make our tax policies to ask them too.