On behalf of Canada's 71,000 chartered accountants, thank you, Mr. Chairman, for the opportunity to speak to you today.
Our analysis, comments, and recommendations are contained in the written submission, which was provided to you. We wish to highlight certain areas that we consider particularly important. These are debt reduction and reducing our debt-to-GDP ratio faster to strengthen Canada's future, and corporate tax relief to make Canada more competitive and productive.
Let me begin with the first item: strengthening Canada's future.
Despite recent surpluses, the federal debt still remains high at $500 billion. This amounts to approximately $15,500 per Canadian, which is well above the debt level of provincial governments. Lower debt would enable the government to permanently address the problem of tax rates that are uncompetitive with the U.S., our major trading partner, and with the G-7 average.
The recent trend in federal program spending also concerns us. In 2004-05, federal spending reached a record level of about $200 billion, an increase of 15.1%. Continued increases in spending at this level will threaten debt reduction and make tax relief more difficult to achieve.
Aside from a growing economy, the only reason to date that the government has been able to maintain surpluses and reduce taxes is because of low interest rates and declining debt charges. Indeed, had the government kept program spending at the rate of inflation since it began posting surpluses in 1997, we would see very different results today. The surplus for 2004-05 would be almost $45 billion, instead of the current $1.6 billion. This figure adjusts program spending since 1997 to core inflation and interest charges to declining debt. The actual federal debt would be $406 billion, down $93 billion from the 2004-05 level. And finally, the government would be only one year away—instead of seven—from meeting its debt-to-GDP ratio of 25%. With potential savings like these, we could then make Canada a more productive and competitive place in which to live and work.
Therefore we recommend that the government increase the amount to pay down the debt from $3 billion to $5 billion annually. We also recommend that government aim to reduce the debt-to-GDP ratio to 20% by or before the 2013-14 fiscal year.
The second area is creating a more competitive and productive Canada. An uncompetitive tax system is one of the biggest barriers to economic growth. Ireland is an excellent example. It has succeeded by making itself one of the most hospitable countries in the world for trade and commerce, with a corporate tax rate of 12.5%. Its GDP rate per person now ranks higher than Canada's and a full 40% higher than the European average.
What about Canada? While personal tax has remained virtually unchanged over the past decade as a percentage of budgetary revenue, corporate income tax has risen steadily. It is now 1.5% above its 10-year average. Lower corporate taxes would encourage firms to locate in Canada and spur economic activity.
Furthermore, as a recent article in The Economist pointed out, high corporate taxes also hurt individual citizens. When corporate taxes are high, workers shoulder some of the tax burden levied on companies.
It is a fallacy to think that companies bear the burden of the taxes they pay. The burden falls on real people, real citizens. In turn people save less and invest less. This results in a smaller capital stock, less capital per worker, and hence lower wages. This pattern is intensified in a global economy, where capital moves easily from high tax to low tax countries.
The C.D. Howe Institute also supports this. I quote: “Taxes on capital investments have the most powerful effect on Canada's productivity—the ability to produce more with the same resources—compared to all other taxes.”
Therefore, we recommend that the federal government immediately eliminate the corporate surtax and accelerate planned reductions to corporate tax rates. We also recommend that after this is done, the government commit to further reductions in general corporate tax rates to bring them closer to the rate for small business.
One final comment relates to compliance with our tax system and the stress it is under. In part this is due to the failure by trusts and other entities to deliver information such as T3s and T5013s to taxpayers by March 31. Over a thousand firms have recently raised significant concerns over this matter with us. The problem is, many of these slips are not getting to taxpayers until the second or third week of April and are often amended thereafter. This puts a huge burden on the filing of all returns, especially personal returns, which must be filed by April 30. I am not proposing extending the April 30 deadline. However, I am asking CRA and/or the Department of Finance to look at ways to ensure taxpayers get this information by March 31, the date in the existing law.
Mr. Chairman, this concludes our overview comments in support of our written submission. Thank you for the opportunity to speak to you today.