Good afternoon.
I am Bruce Flexman, chair of the CICA tax policy committee. On behalf Canada's 75,000 chartered accountants, I thank you, Chairman, for the opportunity to appear before your committee.
In my remarks today I will highlight our views on the federal tax and program spending measures needed to ensure prosperity and a sustainable future for Canadians. Although there are encouraging signs that Canada is expected to return to economic growth, the country continues to operate in uncertain fiscal times.
As outlined last month, the country's fiscal position is now forecast to be weaker than projected in the 2009 budget. It is essential that the next budget include measures aimed at creating wealth, boosting job creation, and facilitating capital mobility, and that strong controls be placed on program spending. In doing so, there's no question that the government faces a difficult balancing act.
Let me make the case for corporate income tax reductions. We continue to believe that our tax system should create wealth and enable individuals to maintain a relatively high standard of living. Central to this is the need to further reduce corporate income taxes. There are solid reasons for doing so. Studies show that taxes on capital investments have the most profound effect on our productivity. Evidence also shows that an increase in the tax burden placed on capital investment substantially reduces the income paid to workers when business productivity is impaired. Finance Canada's research acknowledges that lower corporate income taxes result in increased business investment.
We note that Canada has made important progress in reducing corporate taxes, and we applaud the government's goal of establishing the lowest marginal effective tax rate on new business investment in the G-7 by 2010. We also welcome recent announcements that Ontario and British Columbia will adopt a harmonized sales tax and that the federal government will provide funding to these provinces to support the transition.
We urge the government to stay the course in reducing the corporate income tax rate to 15% by 2012. Canada simply cannot afford to abandon the progress that has been made in reducing corporate taxes.
At the same time, we can't afford to stand still while competing. Countries make continued progress in reducing their corporate taxes. A recent report by the C.D. Howe Institute acknowledges that tax changes planned by federal and provincial governments in Canada will result in our marginal effective tax rate falling to 18.9% by 2013, bringing Canada close to the average rate among 80 countries worldwide. However, it also cautions that in a changing world it is unrealistic to assume that other countries will not reform their corporate taxes.
Further business tax reductions must be undertaken in order to truly drive wealth creation, increase prosperity in Canada, and allow profitable companies to grow and prosper—those that are often in the best position to expand and compete internationally.
As finances improve, we urge the government to reduce the corporate tax rate to the small business level. We also urge the adoption of recommendations contained in the report of the Advisory Panel on Canada’s System of International Taxation aimed at ensuring that Canada is better able to compete globally.
Canada must also stay attuned to the personal income tax burden placed on Canadians in order to stay competitive and to attract and retain human capital. We believe a closer look is needed at the personal income taxes paid by those earning between $80,000 and $150,000.
There are two additional measures that we believe should be considered to boost investment in Canada. In order to ensure they act as incentives to investment, tax depreciation or capital cost allowance rates should be continuously adjusted to line up with the true economic value of the asset. Under the SR and ED program, the scientific research and experimental development program, investment tax credits are fully refundable only for smaller companies. We urge the government to make credits available for all claimants.
I also want to comment on program spending restraint. The government has now confirmed a deficit for 2008-09 of $5.8 billion, and it is projecting that the deficit this year will be $55.9 billion, numbers that are significantly larger than those projected only months ago. Deficits are now expected to continue until 2015.
Amid a global financial crisis, it is understandable that the government has embarked on an infrastructure stimulus spending program. The challenge is to ensure that the deficits that will result from this are temporary.
We also believe a framework should be established under which overall program spending does not rise at a rate faster than the rate of inflation, adjusted for population growth.
In conclusion, we believe economic prosperity and sustainability are best achieved through future income tax measures that create wealth, boost job creation, and facilitate both capital mobility and corporate liquidity. At the same time, strict control on program spending is needed to avoid structural deficits and allow further corporate tax reductions, as is the elimination of the deficit over the medium term.
Mr. Chairman, this concludes our comments. Thank you for the opportunity today.