Advancing Canada’s Economic Competitiveness: The Chamber’s Alex Gray’s Addresses the House of Commons Standing Committee on Finance

On November 2, 2023, Alex Gray, Senior Director, Fiscal and Financial Services Policy at the Canadian Chamber, addressed the House of Commons Standing Committee on Finance. His remarks served as a clarion call, emphasizing the urgent need for immediate and decisive action to fortify and elevate Canada’s economic competitiveness. Gray’s talk touched on practical steps like simplifying the tax code and tackling regulatory challenges to spur growth. He highlighted the importance of productivity, emphasizing innovation and increased investment. The conversation also covered concerns about the Digital Services Tax and called for changes in the Scientific Research and Experimental Development tax incentive program. Gray urged Budget 2024 to be a platform for growth-focused policies, aiming to position Canada strongly on the global economic stage.

You can read the full remarks below.

It is my privilege to represent the Canadian Chamber of Commerce and deliver a simple but alarming message: Canada’s economic competitiveness is slipping. Ultimately, it is economic growth that underpins our standard of living and our ability provide the services Canadians require. Absent a vibrant economy, future generations will not enjoy the same of quality of life – and the same quality of opportunity – that we around this table have.

To remedy this, Ottawa must turn its focus to nurturing growth driven by the private sector. As outlined in our official submission, Ottawa can enact immediate change to improve the fundamentals of our economy. Measures like simplifying the tax code, undertaking regulatory reform, and removing internal barriers need not be expensive but will generate abundant growth and investment. Reducing the barriers that prevent the private sector from capitalizing on our strategic economic advantages must be at the forefront of government policy.

It is common refrain in this committee and among the economic commentariat that poor productivity is Canada’s most pressing economic issue. Indeed, the matter is urgent – Canadian productivity is no longer stagnant, but declining. Correcting this trend requires encouraging both private sector innovation and capital investment. Regrettably, we have historically been at pains to promote ourselves as an attractive destination for capital, which has stymied our standard of living.

Yet to deliver the shot in the arm our economy badly needs, we must avoid pitfalls such as new business taxes that repel investment. Canada should strive for a tax environment that encourages – rather than deters – investment. A streamlined and efficient tax system, based on best practices from around the world, is not only a priority but a necessity.

Indeed, our creaky tax system is a hindrance to investment, hence our repeated calls for simplifying the tax code. We also call on the government to avoid imposing new taxes on the business sector, as it currently intends to do in the case of the Digital Services Tax, or DST.

As it stands, Ottawa intends to enact a retroactively imposed DST on certain online platforms’ revenues. This is despite Canada’s participation in international negotiations in which nearly one hundred and forty countries – including our largest trading partner – have agreed to delay imposing such taxes. Our objections are numerous, but I will outline a few for you today. First, we strongly object to the principle of retroactivity, which robs businesses of the certainty they need to make productive investments in innovation and growth. Second, we oppose any measure which will increase the costs for businesses and consumers at a time of such economic precarity. Finally, we must sound the alarm that successive administrations in Washington have stated that enacting a DST would provoke damaging trade retaliation, potentially against key sectors of the Canadian economy. For the benefit of all Canadians, we urge the government to immediately abandon its plan to enact a DST.

Another tax quandary which Ottawa could quickly rectify at minimal cost is the Scientific Research and Experimental Development tax incentive program. As it stands, Canada’s tax rules provide Canadian-controlled private corporations with access to incentives that are not available to publicly listed companies, thereby creating an artificial barrier to growth.

The mention of publicly listed companies typically conjures images of large multinationals, yet in Canada two-thirds of TSX companies are SMEs. This is a unique feature of our capital markets relative to the rest of the world and should be accounted for in crafting policies that encourage innovation. In Canada, preventing these publicly listed SMEs from accessing incentives that encourage more spending on research and development is weighing down our economic potential.

Budget 2024 presents an opportunity for decisive action. We urge Ottawa to adopt pro-growth policies that will invigorate Canada’s economy. As ever, we stand ready to facilitate collaboration between policymakers and the business community to make this happen. Thank you.