Thank you, Mr. Chair.
As in previous years, our analysis, comments, and recommendations are contained in a written submission, which was provided to the committee in August. In our remarks today, we wish to highlight certain areas of that submission that we consider particularly important--debt reduction, sales tax harmonization, and the need for a single corporate tax rate.
Canada's chartered accountants applauded the news that the national debt was reduced by $14.2 billion in the 2006-07 fiscal year and that an additional $10 billion has been committed for debt reduction this year. Despite significant reductions in recent years, the level of federal debt equates to approximately $14,000 for each Canadian, well above provincial debt burdens.
Interest payments currently stand at $34 billion, and based on the government's own estimates, we will not see an appreciable reduction in these yearly amounts over the next five years. Advantage Canada notes that the level of debt charges exceeds combined federal spending on national defence, employment insurance benefits, and international assistance.
We recommend that the government accelerate the pace of future debt reduction beyond that outlined in the economic statement, so that a debt-to-GDP ratio of 20% is reached by or before the 2013-14 fiscal year. In order to achieve this goal, we call for minimum annual debt payments of $5 billion rather than $3 billion.
For the past few years, the CICA has been calling on the federal government to lower corporate taxes as a means to enhance the productivity, competitiveness, and overall growth of the Canadian business sector. Prosperous and growing businesses generate jobs and tax revenue, and that benefits all Canadians.
We were therefore very encouraged by the business tax reductions outlined in the economic statement. The government's commitment to reduce the general corporate tax rate to 15% by 2012 is a positive step.
The question of who bears the burden of corporate income tax is an interesting one. Some would argue that the impact falls only on corporations themselves. That tends to be the political spin, but there is a growing body of evidence that suggests otherwise. Studies show that businesses deal with taxes like any other cost. They either pass them on to consumers in higher prices, force them back onto salary and labour costs by reducing wages of employees, or reduce returns for owners and shareholders.
Looking back to 1998, conclusions reached by the finance department supported the economic argument that businesses ultimately do not bear taxes but simply pass them on. Increasingly, there is evidence that corporate tax ultimately falls primarily on labour incomes. A recent study in the U.K. suggests that any increase in corporate tax is passed on in the form of lower wages. Another study in the U.S. conducted last year confirms that wages are significantly responsive to corporate tax rates.
Closer to home, the Institute for Competitiveness and Prosperity puts it in relatively simple terms: corporations don't pay taxes, people do. The evidence is clear. High business taxes reduce wages for employees, and this is particularly true in small open economies like Canada's.
Reducing corporate taxes should be a bipartisan issue. Many countries around the world on all sides of the political spectrum are coming to this realization and aggressively reducing corporate taxes. Canada cannot be left behind. Accordingly, we'd like to see a faster action aimed at moving the corporate tax rate in line with the lower small business rate. In short, we would like to see faster, deeper cuts.
A single rate would bring much-needed simplification to the tax system by eliminating the rules currently needed to differentiate between large and small business income. Moreover, there is evidence that reducing the corporate rate could actually increase corporate tax revenues. Finance should ensure it models the true costs, if any, of further tax cuts. This would increase the effectiveness of the government's fiscal management.
Our submission also calls on the federal government to renew its efforts to make sales tax harmonization a reality across Canada. The economic statement notes that provincial sales tax harmonization would substantially improve our business tax competitiveness. We urge the government to move aggressively to provide the financial incentives necessary to complete this process.
Finally, the government must continually monitor capital cost allowance rates to ensure that they correspond to the economic life of the asset, which will encourage investment.
The combination of lower corporate taxes, sales tax harmonization, and appropriate CCA rates would greatly assist Canadian businesses, particularly manufacturing businesses, in dealing with a stronger Canadian dollar and the productivity challenge they face. It would also directly incent businesses to become global champions, with their head offices in Canada, which is a key priority.
Mr. Chairman, this concludes our comments in support of our written submission.
Thank you for the opportunity to speak to you today.