Thank you, Mr. Chair.
Committee members, thank you for the invitation to take part in your consultations on Bill C-74.
The Business Council represents chief executives and entrepreneurs of 150 leading Canadian companies in all sectors and regions of the country.
In the council's pre-budget submission we asked the government to introduce a strategy to promote economic growth, encourage private investment, and strengthen competitiveness. Among other recommendations we called on the government to undertake a comprehensive review of Canada's tax system with the goal of strengthening the incentives for both investment and growth. Since we submitted that to the government, the need for a comprehensive review has only been intensified by the controversy over the government's passive investment proposals, and then more recently by the U.S. Tax Cuts and Jobs Act.
While we do welcome the changes made to the passive investment proposals in budget 2018, we believe the government could have done more to address the root of the problem. Rather than lowering the small business tax rate even further and restricting access to the deduction, the government should have eliminated the small business deduction altogether as part of a broader tax reform simplification effort.
Regarding U.S. tax reform, we're disappointed that budget 2018 did not address Canada's serious competitiveness challenges. The U.S. now enjoys a marginal effective tax rate on new investment of 18.8%. That's down from 34.6% and below Canada's existing METR of 20.3%. The relative tax advantage that Canada has enjoyed over the United States for more than a decade was eliminated overnight.
In a recent survey of 90 business council members, nearly two-thirds indicated the U.S. tax reform will either definitely or probably influence their company's future investment plans. Three-quarters of those surveyed are concerned or very concerned about the competitiveness of Canada's business environment. We find this to be a very alarming finding at a time when direct investment in Canada has fallen to an eight-year low.
Now is the time to act on the advice of the federal Advisory Council on Economic Growth, which in its final report called for a review of the tax system by an independent panel of experts. In the advisory council's own words, such a panel should “consider changes to corporate and personal tax rates, the balance between types of taxes, and the use of tax instruments designed to support investment.”
Before I conclude, I would like to make one comment on the fiscal outlook. We remain very concerned about the government's failure to set a clear path to balance over the medium term. Between 2017 and 2023 the government expects to add nearly $100 billion to the federal debt, bringing it to almost three-quarters of a trillion dollars. Over the same period the interest on public debt is expected to grow by 36%. That's more than double the growth rate of direct program spending.
While we share the government's view that targeted investments in infrastructure and innovation create the foundation for long-term economic growth, we also know from experience that rising public deficits and debt only serve to undermine consumer and business confidence with negative consequences for business growth and job creation.
I look forward to questions. Thank you.