Good morning, Mr. Chair and committee members. Thanks for the invitation to take part in your pre-budget consultation.
The Business Council of Canada represents chief executives and entrepreneurs of 150 leading Canadian companies in all sectors of the Canadian economy. Our member companies employ about 1.7 million Canadians and account for roughly half of the value of the Toronto Stock Exchange.
First, let me begin by congratulating the Prime Minister, his cabinet, and chief negotiator Steve Verheul, as well as the team at Global Affairs Canada for achieving a successful outcome in the North American trade negotiations. I'm hesitant to call it the USMCA. I'm going to stick with NAFTA. This is a really good outcome. It provides much needed certainty and clarity for investors in all three countries. This will enable companies to move forward with job-creating projects and expansion plans that we know from conversations with our members were on hold until there was more clarity regarding the North American relationship.
We hope and expect that the Government of Canada and the U.S. administration can continue talks and work towards lifting the illegitimate tariffs on Canadian steel and aluminum exports to the benefit of our industry here.
With that, I'll get into the council's pre-budget submission. In this submission, we ask the government to introduce a comprehensive strategy to improve competitiveness, diversify trade and attract private sector investment. According to a recent survey of our members, only one in seven CEOs expressed confidence in the competitiveness of Canada's business climate. According to that survey, the tax and regulatory burden combined with concerns around the availability of talent were the most important factors affecting company investment plans in Canada.
Among other recommendations, we've called on the government to undertake a comprehensive review of Canada's tax system with the goal of strengthening incentives for investment and growth. We believe the need for this review has only been intensified by the implementation of the U.S. Tax Cuts and Jobs Act earlier this year.
Canada's tax competitiveness has slipped over the last decade as other countries have moved to reform their tax system. Our average combined federal and provincial corporate tax right now sits at three percentage points higher than the OECD average. The OECD average is 23.7% and we're now at 26.8%.
Effective January 1, 2018, the U.S. reduced its federal corporate income tax rate from 35% to 21% and allowed for full expensing of investments in machinery and equipment. This tax reform package also introduced new international tax rules. They encouraged multinationals to shift capital back into the U.S.
These changes have given the U.S. a significant tax advantage over many advanced economies but in particular Canada, given our very close proximity and dependence on that market. According to a recently released study that we commissioned by PwC Canada on the implications of U.S. reform, failing to respond to these changes threatens 635,000 jobs and $85 billion in GDP. The PwC study finds that the tax reform measures in the U.S. have made that location substantially more attractive to locate capital-intensive businesses specifically.
The sectors that we find at most risk as a result of U.S. reform are chemicals, machinery manufacturing, plastics and rubber manufacturing, transportation manufacturing, mining, and food manufacturing. All else being equal, these sectors as a whole will likely face a significant shift in investments from Canada to the U.S. over the next 10 years.
Ontario, unfortunately, will face the most significant impact of this, with 43% of that GDP impact attributed to Ontario, given that Ontario is the home to many of these capital-intensive sectors.
To counteract those effects, PwC identified a number of policy options for your consideration. The first is gradually reducing the combined corporate tax rate to 20%. The second is introducing a temporary 100% depreciation allowance for business spending on equipment structures and acquired intangibles. This is patents, trademarks and copyrights. The third is increasing federal personal income tax brackets to more closely align with the U.S. tax brackets. The fourth is enhancing the system of tax credits for business spending on research and development. This is SR and ED primarily. The fifth is considering the introduction of a tax incentive known as a “patent box” in Canada. This would incent companies to locate research and development operations here.
With that, I look forward to any questions you have and I thank you for the opportunity.