Thank you, Mr. Chairman. It's a pleasure to appear before this committee once again to talk about priorities for the next budget.
On the surface I guess Canada's economy looks pretty good these days. We're now in our fifteenth consecutive year of economic growth; unemployment is at three-decade lows; income is rising; inflation and interest rates remain modest; and governments, federal and provincial, are raking in surpluses. However, our country does face serious challenges. The economy of the United States, our biggest market, is weakening. New economic powers such as China and India are transforming the competitive landscape worldwide. Manufacturers in particular are struggling with high energy prices and a high dollar.
This is why the Canadian Council of Chief Executives has focused so intensely over the past year on the need for a strategic approach to the question of how and where Canada should compete in the world. We therefore strongly support the commitment in the 2006 budget to develop a comprehensive, results-focused agenda for improving Canada's productivity and competitiveness. To this end, we also support the government's fiscal prudence, including its commitment of over $13 billion of surplus to debt reduction this year and its willingness to make tough choices when it comes to the review and reallocation of existing spending.
Earlier this year, we laid out a broad framework for competitiveness in a paper we called “From Bronze to Gold”. We expanded recently on this framework in a memorandum for the Prime Minister, and we've distributed copies of that memo to you today.
In short, many factors matter to Canada's ability to compete for people, ideas, and money within the global economy. To compete for people, we need safe streets, clean air, and access to high-quality education and training. To compete for ideas, we need public investment in research, better ways to commercialize those new discoveries, and sound treatment of intellectual property. To compete for investment, we need efficient regulatory processes, modern infrastructure, and of course, assured access to our markets. But on all three fronts--people, ideas, and money--the single most effective tool that governments have at their disposal is that of tax policy. To build a more productive and innovative economy, the next budget therefore should include further cuts to both personal and corporate tax rates.
In particular, our personal tax system must do more to reward people for investing in themselves and for investing in the economy. Increasing the basic personal exemption, for instance, would encourage more people to get into the workforce. Reducing punitive clawback rates on income-tested benefits would encourage people of modest income to aim for better jobs. Expanding the education and tuition tax credits would encourage more Canadians to invest in lifelong learning.
There should be higher contribution limits and more opportunities for tax-sheltered savings. The dividend tax credit should be made refundable to pension plans and RRSPs--that's a key element of the income trust issue. And people should have some ability to defer paying capital gains tax when they roll the proceeds of one investment into another.
Canadians want the best returns they can get when they set aside savings out of their hard-earned wages, and so do investors everywhere else in the world. The result is that corporate tax rates have a huge impact on where money flows. Canada has made some real progress in recent years in reducing corporate income tax rates. The result has been more, rather than less, money for governments. But this country is not alone in using corporate tax policy to attract investment, and Canada must go further.
As next steps, the government should eliminate the capital tax on financial institutions, accelerate the reduction in corporate income tax that has already been announced, and commit to a further reduction in the corporate tax rate to 15% after 2010. It should also ensure that capital cost allowance rates, as mentioned, reflect the actual useful life of assets, and it should consider a temporary acceleration of write-off rates to help manufacturers cope with the current competitive crunch. Also, it sounds like a minor matter perhaps, but it should eliminate the withholding tax on interest payments under the Canada-U.S. tax treaty. It's something that has been under negotiation for a while. It matters a lot to the ability of Canadian companies to buy other companies in the U.S.
Tax policy, I want to conclude by saying, is not an issue for the federal government alone. It's time for more provinces to step up to the plate and do their share. Our council is prepared to support bold action to help provincial governments meet growing needs in their jurisdiction, but we believe it's equally fair for the federal government to ask the provinces to work together in the national interest.
The Minister of Finance has put on the table the need to complete the conversion of provincial sales taxes to a value-added base and the need to form a single regulator for securities markets. We would suggest that action by provinces on these fronts should be a condition of the next federal-provincial agreement on fiscal arrangements.
Let me close by repeating that many factors matter to competitiveness. Anything that moves us in the right direction will be welcome, but no competitiveness strategy is going to be effective without further cuts in tax rates.
Thank you.