Thank you, Mr. Chairman and ladies and gentlemen. It's a pleasure to be here.
The Halifax Chamber of Commerce is a best practice organization that continuously strives to make Halifax an attractive place in which to live, work, and play. The 1,700 chamber members employ approximately 75,000 people in Halifax, over one-quarter of the labour force in our city. It is the first North American chamber to be certified to the ISO 9001:2000 international standard of quality and is the oldest chamber of commerce on the continent, with roots going back to 1750. Our membership is small business-based. Approximately 83% of our members are small businesses, which in our estimation is under 25 employees.
I would like to start by acknowledging that we've made great strides. Since 1995-96, for example, when it peaked at 68.4%, our debt-to-GDP ratio has been brought down to 32.3%, obviously something the chamber has long been advocating. More recently, especially with the latest economic statements from the federal government, we've seen moves to capitalize on our strong economic position and foster more growth with tax measures in the economic statement, such as the reduction of general corporate income tax and personal income tax measures, and this too is good news for business.
We must not forget that these are good times and we must not waste this opportunity of good times. We've seen a divergence recently in the U.S. and Canadian economies, and Canada is strong on its own. We must seek to maintain that position of strength, look ahead, and ask ourselves what it will take to keep us economically healthy. We must not see our surpluses as reasons to spend more, but rather to use this opportunity to examine rationally the programs that we have, to look at sunset clauses on new programs and spending, to ensure our tax regime is competitive to attract and keep the best businesses here.
This is an excellent time to look at our challenges--the high dollar, for example--and to respond to them. That high dollar is a double-edged sword that we love--good for some and not so good for others. It's a good time to look at our productivity, especially at this time, and consider measures to encourage investment in research and development to make sure our technology is the best it can be by ensuring the capital cost allowance rates match an asset's economic life. This is a good time to build competitiveness by reducing barriers to internal trade, and so on. This is the time to be looking at these opportunities while our federal government is in good shape financially.
While consecutive very large surpluses indicate there might be room to increase expenditures, it is really worthwhile to re-examine the mix between spending and tax cuts. It's also worth noting that recent increases in program spending have been outstripping trends in personal income. This suggests that it might be more appropriate to have a decrease in personal taxes rather than an increase in spending.
Furthermore, on the business side, as of 2006 Canada still had the sixth highest effective tax rate on capital among 36 industrialized and leading developing countries. Improvement to Canada's competitiveness and productivity would follow from an improved tax system. It is also important to recognize that in both cases--in the cases of spending increases and tax cuts--changes are very difficult to reverse. Once we start spending, it's difficult to cut back, and once we cut taxes, it's difficult to reinstate them.
There is much support among economists that those tax cuts with the greatest potential for our country to stimulate our economy and increase productivity and competitiveness are cuts to corporate taxes and personal income taxes. While the 2007 budget and the proposed economic statement in October of this year go some way towards a more competitive system, we are fiscally well positioned as a country even more to do things to make our country a more attractive place to do business.
Given this, we would recommend a mix of tax changes that address both personal and business taxes, including reducing personal income tax rates, introducing a tax-prepaid savings plan, continuing to review and adjust any capital cost allowance rates to line them up with the true economic life of the relevant asset, and reducing the general corporate income tax rate.
More specifically, we suggest the government consider raising the threshold at which the top marginal personal income rate kicks in to $150,000; introduce tax-prepaid savings plans--you may have heard that from other groups as well--alongside current savings vehicles and fully integrate these contributions to those of all existing tax-deferred savings plans; and continue to review and adjust any capital cost allowance rates that do not line up with the true economic life of the relevant assets.
While technically not a tax measure, EI is a major cost to employers. We recommend that the EI program be returned to its original goal of providing insurance against unintended unemployment. This will facilitate further reductions in premiums. We also recommend that employer EI premium rates be gradually reduced to a level equal to that of the employee premium level; that a system be implemented that allows for over-contributions for employers to be refunded; and that an experienced rating system be examined, to be gradually introduced for employers.
Generally speaking, the chamber supports broad-based tax cuts as opposed to very specific tax breaks. With respect to the relationship between levels of taxes and levels of services, again I would point to consecutive large surpluses as evidence that there is room for additional cuts.
Finally, taxes must not be considered in isolation. Continued adherence to a clear debt management plan and attention to spending are equally important elements of the fiscal and economic equation.
On a final note regarding taxation—because I know that's the primary mandate of your listening today—the chamber surveys its members periodically to get input on policy and advocacy directions and to identify our members' priorities, remembering that 83% are small business. While taxes are always high on the priority list, when it comes to detailed feedback this is hard to come by, particularly at the provincial and federal levels. When you're a business person and someone asks you what we can do with taxes, “Lower them” is a pretty good answer, and one that we hear a lot. Depending on the business size and the industry, business owners are looking for a specific tax mix, but it's important to keep in mind that they don't often do their own taxes.