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Canadian Companies Plan to Lobby Against Liberal Plan to Cancel Tax Cuts

Canada’s largest business group will step up its lobbying campaign against opposition leader Michael Ignatieff’s plan to cancel corporate tax cuts, saying it threatens the investment needed to carry an economic recovery.

Canadian Chamber of Commerce President Perrin Beatty says his group will soon launch new advertisements and meet with individual members of Parliament, urging them to proceed with a tax cut scheduled for next year by Prime Minister Stephen Harper’s Conservative Party. Ignatieff says his Liberals will cancel the cut if he wins the next election.

“It’s major concern and we are going to be very active on that,” said Beatty, a former cabinet minister whose group represents 192,000 companies. “Parliament must keep its word” after approving the plan in the last two budgets, he said.

The Bank of Canada said last week the recovery will depend more on business investment and exports as government stimulus and consumer spending slow. Governor Mark Carney said Oct. 20 that investment should grow because companies need to boost their competitiveness and can take advantage of a stronger dollar to buy new imported machinery after cutting back during the global recession.

The central bank’s survey of about 100 executives published this month found the highest gauge of investment plans since the question was asked in 1998.

‘Very Damaging’

“The key issue is confidence,” Beatty said in an interview today in Bloomberg’s Ottawa newsroom. “Business is going to hold back making investments if they don’t know what the rules are going to be,” adding the effects of a cancellation would be “very damaging.”

The chamber’s board of directors includes executives from Research In Motion Ltd. and Royal Bank of Canada.

“The best thing to do for business confidence is to pay off the deficit,” Scott Brison, the Liberal Party’s spokesman for finance issues, said by telephone from Halifax, Nova Scotia. “It was Stephen Harper’s reckless spending and dumb tax policy that put us into deficit before the downturn,” he said, referring to a reduction in the federal sales tax.

While Harper’s government isn’t scheduled to face election until October 2012, it lacks a majority of seats in the House of Commons and needs opposition support to avoid being toppled on so-called confidence votes such as budgets and spending bills.

No Majority

An EKOS Research Associates poll of 1,312 Canadians published today suggests no party would win a majority now, with the Conservative Party having the support of 34 percent of voters, against the Liberals at 28 percent. The poll, conducted Oct. 20-26, has a margin of error of 3 percentage points, 19 times out of 20.

Finance Minister Jim Flaherty 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 ($981 million) to support people who care for sick and aged family members at home.

“The best social program is a job,” said Beatty, a former cabinet minister under Progressive Conservatives Joe Clark and Brian Mulroney between 1979 and 1993. “The best way to create a job is investment.”

The Liberal tax proposal has also been criticized by Jayson Myers, president of Canadian Manufacturers & Exporters. Manufacturers such as Bombardier Inc. were among the hardest hit in a recession that ended last year as U.S. demand plunged. Manufacturers have fired 21 percent of their workforce in the last five years, according to Statistics Canada figures.

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 this month. Canadian spending was 79 cents for every dollar spent by U.S. companies in 2008, down from 83 cents in 1993, the report said.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.

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