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Don’t expect Canada to cut the corporate tax rate to match Donald Trump’s reductions, innovation minister tells tech leaders

Minister of Innovation, Science and Economic Development Navdeep Bains rises during Question Period in the House of Commons on Parliament Hill in Ottawa on Monday, Sept. 24, 2018
Minister of Innovation, Science and Economic Development Navdeep Bains rises during Question Period in the House of Commons on Parliament Hill in Ottawa on Monday, Sept. 24, 2018. THE CANADIAN PRESS/Justin Tang
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Innovation Minister Navdeep Bains suggested Monday night that the federal government will not look to match the Donald Trump administration’s cut to the U.S. corporate tax rate.

Speaking in Ottawa at the CEO Summit of the Council of Canadian Innovators (CCI), a lobby group which represents domestic technology companies, Bains said the government would look to more targeted tax measures to promote Canadian competitiveness.

“Yes, the U.S. has made significant reductions in the overall corporate tax rates. I think from our perspective—and again, I don’t want to pre-judge the work that [Finance] Minister [Bill] Morneau is doing … but I think we’re going to be more thoughtful about not exclusively following that path,” he said. “We’re going to focus more on targeted tax measures to look at how we can unlock more money for investments in equipment, in capital allocation, for better productivity and competitiveness.”

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Talking Point

Innovation Minister Navdeep Bains told tech leaders Monday night that they shouldn’t expect a cut to Canada’s corporate tax rate to match the reductions Donald Trump made last year, the first time a cabinet minister has publicly indicated no direct cut is forthcoming. The government has spent all year saying it is studying the issue.

Bains’ remarks on Monday night were the first time a cabinet member has publicly indicated the government won’t be cutting the corporate rate. The innovation minister suggested that what businesses might use the extra money for would factor into any decision not to cut. “In Canada, we have seen low corporate tax rates, but we haven’t necessarily seen investments in R&D,” he said, noting that Canada ranks 22nd out of 34 in the OECD on that measure. “That’s part of the rationale as well—record cash on balance sheets.”

Prominent business groups, including the Canadian Chamber of Commerce and the Business Council of Canada, have been calling for Finance Minister Bill Morneau to cut Canada’s corporate tax rate since the United States dropped its rate to 21 per cent from 35 per cent last year. Industry groups—such as Canadian Manufacturers & Exporters, which represents over 10,000 companies—have also called for cuts. Since January 2018, Morneau has maintained that he is carefully studying the issue, but has not offered specifics on a proposed response.

Officials speaking on background told media outlets last month that Morneau was leaning toward a strategy similar to the one outlined by Bains. The finance minister was reported to favour allowing firms to accelerate the write-off of capital investments rather than lowering the corporate rate. Last week, the Senate banking committee issued a report urging Morneau to immediately cut taxes, but he said it was too early to say what the government would announce.

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At the CCI event, Bains also pointed to the “massive deficit” that he said has accompanied the Trump administration’s cuts. Earlier this year, The Logic reported on an internal government analysis that estimated a loss of $2 billion annually for every percentage point that the corporate tax rate was reduced.

Bains made the remarks in response to a question about what the government can and cannot do to help businesses. He also highlighted the Global Skills Strategy, a program that allows qualifying companies to bring in foreign employees in as short a time as two weeks, and commended CCI for its role in pushing for the measure. Referencing broader sentiment around immigration—including the situation with asylum seekers crossing into Canada via the U.S. border and the global rise of nationalism and populism—he called for “businesses to step up and make the economic case [for immigration].”

He also acknowledged challenges with regulations raised by the executives on the six economic strategy tables created by his ministry. “How can we create conditions in the regulatory system to reduce the burden, the red tape, the impacts, the impediments for a lot of the technology and a lot of the innovation that’s occurring?” he said.

The minister also talked about the government’s national intellectual and data strategies as important measures for innovation in the country, and said that he wants to highlight the success stories of Canadian tech.