Good morning.
My name is Luc Vanneste. I'm the executive vice-president and chief financial officer of the Bank of Nova Scotia and the current chair of the CBA's financial affairs committee. I would like to thank the Standing Committee on Finance for providing the Canadian Bankers Association with the opportunity to appear today as part of the pre-budget consultation process.
We support the government's focus on competitiveness for the upcoming budget. Like the government, the CBA believes that additional steps need to be taken to ensure the competitiveness of Canadian citizens and businesses and the Canadian economy in our increasingly competitive world.
First, we would like to commend the government for its May 2006 budget and the positive tax measures. The elimination of the federal capital tax and the corporate surtax and the legislated schedule of reductions in corporate income tax rates demonstrate the government's commitment to establishing a more competitive business environment in Canada.
With respect to the 2007 budget, my brief comments here today underscore the themes outlined in our written submission. My main message is that Canada needs to continue to improve the competitiveness of its tax regime. Good is not good enough. Given the nature and relative size of Canadian markets, combined federal and provincial tax rates need to be comparable, if not lower, than other jurisdictions in order to be competitive.
Lower taxes stimulate economic growth by increasing investment, including employment and productivity, which will strengthen the country's tax base. A strong tax base and a strong economy will ensure a sustainable source of revenue to continue to finance those programs that are so important to Canadians.
We encourage the government to continue to make Canada a great country in which to do business. In this regard, we recommend the following five measures.
First, accelerate the legislated reductions in the federal corporate income tax rate from 21% to 19%, the elimination of the corporate surtax, and introduce further cuts to the federal corporate income tax rate.
Secondly, we recommend that the federal government show leadership by encouraging the provinces to eliminate all capital taxes.
Thirdly, we encourage the government to expedite treaty negotiations to eliminate withholding taxes on interest payments between Canada and the U.S. Eliminating withholding taxes would result in lower interest rates, greater access to borrowed funds, and a reduced cost of capital, improving the efficiency and liquidity of Canadian capital markets.
Fourthly, we recommend that the government proceed with effective corporate dividend tax reforms at the earliest opportunity so as to increase investment in shares of corporations and create a more level playing field in the tax treatment of income trusts and corporate dividend income.
Finally, we encourage the government to proceed with the proposed legislative reforms to the part VI capital tax and consider further adjustments to the part VI tax rate at an appropriate time.
In addition to our tax recommendations, we encourage the government to continue its work with the provinces and territories to create a common securities regulator, with a view to improving the investment environment and the strength of the Canadian economy.
We believe one of the best ways to increase Canada's competitiveness is to take further steps to improve the country's tax regime. The economic benefits of moving in this direction--in particular, strengthening the Canadian tax base--will provide the necessary foundation for a prosperous Canada for many years to come.
Thank you.