Corporate Canada wants Trudeau to adopt Trump-style tax reform

Prime Minister Justin Trudeau meets with members of the Business Council of Canada. Photo: Adam Scotti/PMO

Parliament reconvened Monday. Conservative opposition MPs were pleased to embarrass the government by welcoming a floor-crossing former Liberal MP.

Meanwhile, notable behind-the-scenes efforts by corporate executives are underway to garner support across the aisles from both Liberals and Conservatives to bring Trump-style tax reform to Canada, in the form of tax write-offs to boost manufacturing industry profits.

The specific ask from corporate Canada was unveiled in a September 11 speech by CIBC CEO Victor Dodig, who was speaking to the Toronto Empire Club, a one-time bastion of Tory privilege, on the theme of competitiveness.

Canada needs to compete for investment dollars, said Dodig, notably with the U.S., where Donald Trump has just given corporations major tax breaks.

As a result, Canadian corporate tax rates are no longer lower and barely different than in the U.S. Importantly for the CIBC chief's argument, capital-intensive industries in the U.S. such as machine tooling, chemical, transportation, plastic, and rubber companies now get to expense in one year (i.e. write off against profits) 100 per cent of costs incurred in purchasing machinery.

In Canada manufacturing companies can currently write off 50 per cent of those costs in the first year after purchase, and the rest over the lifetime of the equipment.

For the CIBC banker, 50 per cent is not good enough, because given a choice between investing in the U.S. as opposed to Canada, new investments will go south for the tax advantage.

Any interest charges incurred for investment purposes, be it buying machinery and equipment, or purchasing stock in another company (even in another country) are already fully deductible in Canada, reducing taxable corporate income by the amount of interest paid.

Putting a 100 per cent-in-one-year write-off on top of the interest deduction would give CIBC and the other major banks even bigger profit opportunities.

Interest payments go to banks, so no wonder the CIBC is happy that its corporate customers get a tax break. Canadian tax policy already subsidizes the cost of corporate lending.

However, the Trump-style write-off would not be available to new companies, since start-ups do not have profits to write down. Such a measure is of no use to companies that struggle to make profits, but they already can write down their losses.

Banks would win, manufacturing profits would win, but jobs and the economy, not so much.

What 100 per cent write-off Trump-style tax reform does is transfer the cost of investing to the national treasury while depriving the treasury of revenue.

A tax write-off immediately boosts corporate profits, making CEOs look good without doing much other than lobbying the government.

The Canadian business class, while not great at business, has always been good at politics. In 1976 the Business Council on National Issues was created (today called the Business Council of Canada) as a lobby group made up of the CEOs of the 150 largest companies in Canada.

The leadership of the Business Council has a consistent objective -- rein in government intervention -- but it changes its message to match the ups and downs of the business cycle. When prices accelerate, as in the 1970s, the Business Council came out against government spending because it causes inflation.

In an economic downturn, as in the early 1990s, the Business Council calls on the government to reduce the deficit by cutting government spending.

Without either inflation or deficit worries, the Business Council trumpets the need to compete and calls for tax breaks that reduce the spending capacity of government or trade deals that curtail national sovereignty. 

Over the years the Business Council has been able to count on the support of Liberal and Conservative governments for their favoured projects such as free trade deals, fiscal austerity, and corporate tax breaks.

The most recent version of the "need to compete with the U.S." argument comes courtesy of the Business Council, chaired by former Liberal cabinet minister and current CIBC Chair, John Manley, the person Victor Dodig reports to. Needless to say, should Trump-style tax reform comes to Canada, Business Council member corporations will reap the benefits.      

The Business Council paid an accounting firm to study competitiveness and prosperity. Price Waterhouse Cooper came up with a number to grab public attention: the negative impact on Canada of the new U.S. 100 per cent tax write-off would be 10 times greater than the loss of NAFTA.

This summer the Business Council network put out the message about the need for a 100 per cent write-off. The "news" was relayed by the corporate media. The eventual target of the manufacturing consent campaign is the Liberal government and the Conservative opposition.

Finance Minister Bill Morneau has been out talking to business leaders across Canada in preparation for delivering a Fall Economic Update to Parliament. What did he hear? As reported by the CBC, Canada faces a competitiveness challenge following U.S. tax reform.

No surprise: the minister is considering faster write-offs for investment dollars.

Duncan Cameron is president emeritus of rabble.ca and writes a weekly column on politics and current affairs.

Photo: Adam Scotti/PMO

Help make rabble sustainable. Please consider supporting our work with a monthly donation. Support rabble.ca today for as little as $1 per month!

Related Items

Thank you for reading this story...

More people are reading rabble.ca than ever and unlike many news organizations, we have never put up a paywall – at rabble we’ve always believed in making our reporting and analysis free to all. But media isn’t free to produce. rabble’s total budget is likely less than what big corporate media spend on photocopying (we kid you not!) and we do not have any major foundation, sponsor or angel investor. Our only supporters are people and organizations -- like you. This is why we need your help.

If everyone who visits rabble and likes it chipped in a couple of dollars per month, our future would be much more secure and we could do much more: like the things our readers tell us they want to see more of: more staff reporters and more work to complete the upgrade of our website.

We’re asking if you could make a donation, right now, to set rabble on solid footing.

Make a donation.Become a monthly supporter.

Comments

We welcome your comments! rabble.ca embraces a pro-human rights, pro-feminist, anti-racist, queer-positive, anti-imperialist and pro-labour stance, and encourages discussions which develop progressive thought. Our full comment policy can be found here. Learn more about Disqus on rabble.ca and your privacy here. Please keep in mind:

Do

  • Tell the truth and avoid rumours.
  • Add context and background.
  • Report typos and logical fallacies.
  • Be respectful.
  • Respect copyright - link to articles.
  • Stay focused. Bring in-depth commentary to our discussion forum, babble.

Don't

  • Use oppressive/offensive language.
  • Libel or defame.
  • Bully or troll.
  • Post spam.
  • Engage trolls. Flag suspect activity instead.