Canadian business investment needed to sustain an economic recovery is threatened by Liberal Party Leader Michael Ignatieff’s pledge to scrap planned corporate tax cuts because companies may find it difficult to plan, the head of the country’s manufacturing lobby group said.
Prime Minister Stephen Harper’s Conservative Party government has scheduled a 1.5 percentage point reduction in the corporate tax rate on Jan. 1 to 16.5 percent, and a further cut to 15 percent in 2012. Ignatieff said Oct. 5 he would cancel the reduction and spend C$1 billion ($986 million) to support people who care for sick and aged family members at home.
“Right now, frankly, I don’t think we can afford the political uncertainty that’s even being caused by this debate,” Jayson Myers, president of Canadian Manufacturers & Exporters, said in an interview today at Bloomberg’s Ottawa office. “We are in a pretty tight situation financially in the business sector.”
Ignatieff’s Liberals, along with two other opposition parties, have a majority of seats in the House of Commons. The opposition could force an election by rejecting the next budget, often presented in February or March.
“I see this as a credibility issue above all,” Myers said. “I don’t think we can afford the uncertainty right now if you want companies to make big investments in Canada.”
Bank of Canada Governor Mark Carney forecasts an investment rebound will sustain a recovery next year as the government ends stimulus spending. The economy won’t be helped much by tax cuts funded with deficits or by the government’s plan to raise payroll taxes, said Scott Brison, the Liberal Party’s spokesman for finance issues.
Not Good Policy
“We will cut corporate taxes again, but not until we get out of deficit,” Brison said in an interview. “It isn’t good economic policy to cut corporate taxes on borrowed money.”
Finance Minister Jim Flaherty reiterated Oct. 4 the government will balance the budget by 2015.
Manufacturers such as Canfor Corp. were among the hardest hit in a recession that ended last year as U.S. demand for automobiles and lumber plunged. Some companies are still having trouble getting loans and finding a “pipeline of orders,” Myers said.
“Exporters are extremely vulnerable still to what’s going on in the U.S., Europe,” Myers said. “It makes companies extremely cautious about investing or ramping up production.”
Manufacturers have fired 21 percent of their workforce in the last five years, according to Statistics Canada figures. Factory sales fell 28 percent to C$38.5 billion in May 2009 from a peak of C$53.3 billion in July 2008, and have not yet recouped half of that loss.
Myers heads a group with about 3,000 members that was founded in 1871, and is a member of panels that advise the country’s trade, industry and border services ministers. A former chief economist, he was promoted to president of the Canadian Manufacturers & Exporters in July 2007.
The government should go beyond a low corporate tax rate to boost investment with measures such as extending accelerated capital cost allowances, and making tax credits for research and worker training refundable, Myers said in the interview.
Canadian companies are falling further behind U.S. companies in spending on new equipment for their workers, the C.D. Howe Institute, a nonpartisan research group, said in a report today. Canadian spending was 79 cents for every dollar spent by U.S. companies in 2008, down from 83 cents in 1993, the report said.