Thank you very much for inviting me again. I'm not allowed to present the slides, but they're reproduced.
I want to run through the disclosures first because I think they're important. I don't have any investments or consulting contracts of any kind anywhere in the world. I am a poor professor. No organization, corporation, NGO, or political party influences my views. I do an enormous amount of research, and I talk to myself a lot, but I am a tenured professor who is free to speak my mind without any influence from outside organizations.
I've also taught over 100 times in the third world. That's relevant because I'm going to be talking about protectionism today.
I was thinking last night and this morning about not providing a title to you for my presentation, but I've come up with one. I'm going to call it “Toto, we are not in Kansas anymore”. I'm referring, of course, to Dorothy and the Wizard of Oz and that we are in a brave new world, a rapidly globalizing world. There are major new competitors coming on stream—such as China, where I have been teaching every year since 1997—and we cannot pursue the policies of the past.
Although I agree with much of what the PBO said in the broad big picture, that the long-term threats are much more critical to Canada than the short term, I think we're very strong. I'm not going to get into the details because I don't have a database that the Conference Board or the Department of Finance or the PBO have. I do want to deal with some “big P” policy issues in my short time.
I do think we have the strongest economy in the OECD today; that's been endorsed internationally. I agree, again, with the PBO that the economies of the European Union and the U.S.A. are in great danger due to profligate and irresponsible indebtedness by some of those countries, especially in the States and in southern Europe. I also put the assumption on the table that economic growth is absolutely crucial to grow the jobs that pay the taxes to finance the social programs that we value.
What I really want to talk about today are what I believe are three threats or harms or risks to Canada and individual Canadians.
The first one is protectionism. I think we have to reframe this tired debate that has been discredited in the research literature. I refer you to the Institute for Research on Public Policy, January 2010, dispelling myths about foreign investment. It's an excellent summary of all the research, and it blows all those myths out of the water.
We have to reframe the debate from who owns the company to who is investing in Canada and creating jobs. In other words, a Canadian company that is not investing here, versus a foreign company that is, is in worse position, in my view--is not doing as much--than a foreign company that's investing here. In fact, the research is showing very clearly that foreign firms have higher levels of productivity and they pay higher levels of wages. That's an important point. We have to open up and not shut down our Canadian economy. Why? Because one-third of the boomers are aging.
This was supported unanimously at the November G-20 in South Korea. The OECD, the World Bank, the WTO, and the ILO opposed protectionism. I have these documents for the committee if they want them, and I can copy them off the laptop. This was “Trade and employment...Lessons for the future”. You have the bullets there, the quotes, saying that protectionism of any kind is terrible for the economy.
On number two, again, I just want to mention one thing. I realize I am from the research-based community, the world of scholarship, and I understand that some of the things I'm going to say today are going to upset some people. That's fine. I'm not a politician. I'm not elected; I'm tenured. You can't get rid of me and my president can't get rid of me. I can say what I want. And I'm going to support it with research—refereed, scholarship research—in the leading organizations, such as the OECD.
Let's turn to corporate taxation. I've followed the debate over the past two months, and I'm astonished at the debate. There has been no reference to the OECD, to their 10-year tax policy research branch studies. They have published dozens and dozens of studies that have concluded, irrevocably, without condition, that corporate taxes are the most harmful type of tax for economic growth. There is no ambiguity in the research—none, zip, nada. I know that's going to upset some people, but that's a fact.
Also on the incidence of taxation, who pays corporate taxes? There's this myth in Canada that the corporations pay taxes. Corporations do not pay taxes even when they pay taxes. I am a former banker. I used to lend millions of dollars in this city to small and mid-sized businesses. Tax is just another cost of doing business, like wages. It's like the plant and equipment. If you don't pay those bills, guess what? The bank or someone else shuts you down and puts you into insolvency.
A corporation is an intermediary and it passes on all its costs of being in business, including taxes, either through increased price of goods and services or through lower wages. There is excellent research coming out of the Federal Reserve Bank, the research branch in the U.S., showing it manifests in lower wages.
The third debate is on the reform to increase CPP. There are many people saying, “Oh, my goodness, Canadians are falling off the cliff into poverty. Our elders are just falling apart.” This is fatuous, empirical nonsense.
The OECD “Pensions at a Glance” has said on the record—and again I have this report here in my laptop to give to the committee—that we have one of the highest social safety nets in the world for elderly people, and less than 5% of our elders are in poverty, one of the lowest on the planet Earth. If we're going to do anything, we should be targeting that 5%, which is about 250,000 families, and not doing a universal increase that's going to drive up payroll taxes on employers.
In conclusion, the Canadian economy is extraordinarily strong. I believe it's one of the two strongest economies in the west, along with Germany. But there are great dangers ahead.
First, protectionism is a cancer that is metastasizing in our country. We've got to stop it now for those who care about this country and care about individual Canadians. As I said in an interview on CBC's Lang & O'Leary last Friday, protectionism produces poverty.
Second, we've got to at least reduce, if not eliminate, corporate taxes because they are taxes on workers.
And third, we shouldn't be increasing the CPP; we should be targeting that 5%.
Thank you.