Canada Remains Competitive Despite U.S. Tax Cuts, Morneau Says

(Bloomberg) -- Finance Minister Bill Morneau said Canada’s tax rates remain competitive, even as a key business group recommends his government follow U.S. cuts.

Morneau met Friday with private-sector economists in Toronto ahead of his Feb. 27 budget. He said they discussed the impact of U.S. tax changes, as well as ongoing talks to revamp the North American Free Trade Agreement. He declined to say if corporate tax cuts were on the table on this side of the border in the wake of the Trump administration’s tax overhaul.

“We want to make sure we really understand those impacts but in the context of a broader and successful Canadian economy, in the context of a place where people want to come to and not only build a business but build a life,” Morneau told reporters after his meeting. 

Prime Minister Justin Trudeau’s government is facing calls to cut taxes for Canadian business after the U.S. lowered corporate rates. In a letter to Morneau this week, the Business Council of Canada -- which represents chief executives from dozens of major companies -- said the country “must move quickly to shore up its business tax competitiveness.”

Morneau said this year’s budget would build off the last two, at a time when a slowing economy is leaving him with little room for new spending. Canada led the Group of Seven in economic growth in 2017 but is poised to fall to third-place, behind the U.S. and Germany, according to a Bloomberg survey of economists.

“We urge you to take decisive action now to bolster private-sector confidence in the Canadian economy, discourage capital flight and increase the incentives for new business investment,” business council President John Manley said in his letter to Morneau, dated Tuesday. Manley, himself a former finance minister, suggested an immediate cut to corporate taxes as one option.

Morneau said Friday that in the short-term the budget will be about “making sure everyone can be successful in our economy” so that in the longer term, it can be innovative and create jobs for more Canadians. “We know that women can have a higher participation rate in our workforce, we know that they’re not getting the same returns from their work. But we also know that over the long-term we need to focus on research and science.”

The private-sector economists had a diversity of views, Morneau said, but many argued Canada’s economy is in a position to weather challenges. “The best way we can think about uncertainties and risks is by having a strong and resilient economy.”

Morneau reiterated his commitment to reducing Canada’s debt relative to the size of its gross domestic product but declined to say whether he’ll balance the budget.

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