Mr. Chairman, thank you, and thanks to the committee for inviting comment on Canada's place in a competitive world. I'm delighted to be back in front of the committee and delighted to see some familiar faces, and some new ones as well. I am very happy to be here.
Canada's competitiveness has been a dominant theme in the C.D. Howe Institute's work for literally decades. What I'd like to do here, given the constraints of the pre-budget format, is incorporate that work by reference, especially our shadow budget documents of the past five years, and focus on a couple of key themes and measures. That lets me be very brief indeed.
One touchstone for me is Canadians' prosperity. This speaks to the importance of making Canada a friendly place to work, and even invest. There is a virtuous link between saving and investing, between investing in people and innovation and growing productivity, and a link between growing productivity and prosperity by way of building Canadians' and workers' wages and seeing to it that they enjoy the fruits of their efforts.
Central to this story, I think, is saving and investment and improving the environment for it. Canada's tax rates on business investment are among the very highest in the developed world, notwithstanding recent and pending and very helpful relief from federal income and capital taxes. This is a real barrier to investment and growth and innovation, and mitigating it will require action from Canada and the provinces. Sooner rather than later, of course, is something that I think is important to enlarge the Canadian economy, and it's certainly something the government could not afford not to address.
On this front, the federal government could and should take further steps in reducing the general corporate income tax rate and working with the provinces to eliminate all taxes on paid-up capital, including especially the capital tax on financial institutions. These are taxes whose time, if it ever came, has quite certainly passed.
Among the biggest contributors to high effective tax rates on business investment are provincial retail sales taxes. Of course, this is a provincial responsibility, but the good news here for the federal government is that we have a splendid opportunity, presented by the current government's commitment to lowering the GST, to offer to the provinces financial support for a transition to compatible value-added taxes in place of provincial RSTs, and this would very much improve the investment environment in at least five provinces.
On the personal side, preserving the returns to working and saving means getting down to punitive marginal rates that apply to low-income families with children. It also means simple improvements to the saving environment for families at all income levels. The current government's campaign commitment to improving capital gains taxation turns out to be important here. Were the federal government to permit savers from low-income families, as well as others, to save after tax income in registered tax prepaid savings plans, capital gains could accumulate there without further tax implications, improving capital market performance and going partway to meeting the government's commitment to a form of capital gains rollover.
There are other options, such as capital gains deferral accounts. These could be modelled after the index securities investment plans of the early 1980s, and I would refer members of the committee to work by my colleagues, Jack Mintz and Tom Wilson, from Australia this year, updating the model to the current context.
A very simple option, and I have to admit that I like this one because of its simplicity, would be to permit capital gains to be rolled over into individual RSPs, so that taxes on gains would be deferred until a saver's chosen future to draw on their savings.
These options are all aimed at building Canadian families' prosperity, by improving the environment for savings and growth and by making Canada more globally competitive.
Thank you.