The Chamber of Commerce of Metropolitan Montreal

Five priority actions to reinforce our competitiveness [brief]

As part of the federal pre-budget consultations for the 2019 budget, the Chamber submitted its recommendations to the Standing Committee on Finance of the House of Commons of Canada on August 3.

The Chamber submitted a brief to the House of Commons containing 11 recommendations grouped into five priority actions aimed at reinforcing Canada’s competitiveness in the current economic climate. Here is an outline.

Context

Though there are significant risks that are concerning the business world, the current economic situation is marked by positive growth. The outlook is favourable on both a global and national scale. This year, GDP growth throughout the world is expected to be around 3.8%. In Canada, analysts are predicting 2% growth for 2018. Montréal is following the same trend. The city’s GDP will increase by 2.1% and the unemployment rate will remain at a historic low.

However, there are many factors weighing on these positive outlooks that could topple the global economy. These factors include the protectionist measures between the United States and its trade partners, the uncertain outcome of Brexit and a general heightening of geopolitical tensions. At the same time, Montréal’s business world is very concerned by the budget deficit situation, which detracts from the government’s ability to adapt to the economic shock that the abovementioned factors could provoke.

1. Improve the competitiveness of Canada’s tax system

The American tax reform at the beginning of this year resulted in a loss of tax competitiveness if we compare the combined Canadian federal-provincial tax rate with the new American federal-state tax rate. In fact, the federal tax rate for American corporations has gone from 35% to 21%. Considering that the average tax rate of American states is somewhere between 5 and 7%, the combined tax rate for corporations in the United States is still 26% on average. This is comparable to the combined tax rate of Québec’s large companies, which is 26.7%.

Canada’s tax rate for individuals is one of the highest in North America and in all OECD countries. In fact, Canada’s tax burden rate of 11.6% is higher than the OECD average (8.4%) and that of the United States (10.5%).

The business world is particularly concerned by the loss of competitiveness in Canada compared to the United States in terms of global taxation as well as the capacity to maintain private investments and attract international talent to our country.

Furthermore, for the last year, the business world has been calling for the Canadian Government to attend to the unacceptable situation of tax inequity caused by sales taxes not being collected for online transactions. This situation is depriving the government of significant tax revenue and directly affecting the competitiveness of our companies, which were already shaken by the new business models developed by the digital giants.

2. Pursue investments in innovation

In order to stimulate the development of artificial intelligence and research and development, and to maintain Montréal as one of the global hubs of artificial intelligence, it is essential to have access to large volumes of data. In order to do this, the opening of data by government institutions needs to be a priority, as well as the protection of personal data and the security of online transactions. 

Furthermore, in a context of growing information exchange and data flows around the world, our digital infrastructure needs to be modernized in order to meet the growing necessity of internet access across the nation. To this end, 5G technology must be deployed to ensure that Canada maintains its competitive advantage.

3. Improve international and interprovincial trade

The state of the relationship between Canada and its primary trade partner, the United States, is currently characterized by escalation marked by the imposition of American tariffs on some of our economy’s key exports. Furthermore, NAFTA’s uncertain future remains a primary concern in the business world.

The Chamber asks that in its next budget, the Canadian government support Canadian businesses in foreign markets and increase the number of trade delegates in partner countries with strong economic potential.

The Chamber also asks the Canadian government to remove the barriers to interprovincial trade and maintain financial support for the sectors affected by the imposition of American tariffs, while ensuring that we can still respond to any additional American tariffs.

4. Accelerate investments in infrastructure

Many construction zones and infrastructure modernization projects are underway in our city and will be ongoing for many years to come. The Canadian government’s financial commitments to modernize the metropolis’s projects will increase the competitiveness of Montréal’s economy.

The Chamber asks the government to continue investing in public transit infrastructure and to make the funds they announce available quickly, particularly for priority infrastructure projects such as extending the metro’s blue line. The Chamber also invites the government to accelerate the deployment of the Canada Infrastructure Bank and to clarify the process for requesting funding for non-solicited projects as well as the Bank’s project selection criteria.

Economic activity in the Port of Montreal has grown remarkably over the last few years. With Canada’s free trade agreement with the European Union (CETA) coming into effect and the upcoming signature of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Montreal Port Authority is predicting a 60% increase in container handling.

The Chamber recommends that the government invest in the growth of the Port of Montreal by offering funds to support its expansion.

In terms of airport infrastructure, Montreal’s strong economy is also affecting Montréal-Trudeau airport. For the last three years, the airport has had an 8% increase in traffic. In order to adapt to this sharp increase, Aéroports de Montréal is looking to invest $2.5 billion in its infrastructure. However, the institution’s limited funding opportunities are restricting its ability to modernize its facilities. These funding issues are similar to those all Canadian airports are experiencing.

The Chamber asks the government to make funding for Canadian airports more flexible by opening the sector to private partnerships.

5. Establish a strong and explicit plan to balance the budget

Although the Canadian economy is on the right track, the business world is becoming more and more concerned about the absence of a credible plan to balance the budget in this favourable economic context. The Canadian government is depriving itself of important leeway in case of a crisis or an economic recession.

6. The Chamber’s list of recommendations

  • Recommendation no. 1: Lower the tax burden for both businesses and individuals
  • Recommendation no. 2: Systematize the application of the Canadian tax system to online transactions and, in particular, ensure that sales taxes on products and services bought online are deducted
  • Recommendation no. 3: Improve access to data in order to stimulate business innovation and reinforce the security of online transactions
  • Recommendation no. 4: Pursue investments in 5G technology in Canada
  • Recommendation no. 5: Increase available funding to:
    • – Support Canadian businesses in foreign markets, particularly SMEs
    • – Increase the number of trade delegates in target countries
  • Recommendation no. 6: Maintain financial support for the sectors affected by the imposition of American tariffs and ensure that we are capable of reacting to any additional American tariffs
  • Recommendation no. 7: Contribute to the efforts of the provinces by removing the barriers to interprovincial trade
  • Recommendation no. 8: Make funds announced for priority infrastructure projects available more rapidly and clarify the criteria and processes of the Canada Infrastructure Bank
  • Recommendation no. 9: Invest in the growth of the Port of Montreal by offering funds to support its expansion
  • Recommendation no. 10: Make funding for Canadian airports more flexible by opening the sector to private partnerships
  • Recommendation no. 11: Adopt a plan to balance the budget that includes annual targets

In sum, the current economic climate is favourable on a national and global scale. Montréal is following the same trend. However, many external factors are weighing on growth perspectives and worrying the business world. To reinforce the competitiveness of the Canadian economy, the Government of Canada must act quickly to adapt Canadian taxes to American reform and to the digital economy. It must pursue investments in innovation, diversify preferential market access, make funds for infrastructure projects available more quickly, and finally, balance the budget.

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