Good morning. Thanks for having me here.
In my role at the C.D. Howe Institute, Canada's leading economic policy think tank, I get to take back advice from parliamentarians on what we should focus on. I'll try to be very brief here to allow all the members to dig into our submission and to let us know what issues are most on their minds for us to work on.
I'll start with our motivating urgent problem behind all the work at the C.D. Howe Institute and our submission, which is that Canada's business investment record has been shockingly weak. A lack of investment means that Canadian workers just don't have the tools or equipment that they need to be as productive as possible. Equipping our workers will mean higher real earnings and higher living standards per person. When those are not growing, that puts many things at risk, including government revenue.
For every dollar of investment per worker in the OECD, a worker in Canada is getting only about 73¢. For every dollar of new capital that a U.S. worker gets, a Canadian gets only about 53¢. This is a problem that's been getting progressively worse since 2015. We need a confidence-inspiring fiscal framework that leads to broad-based reductions in marginal tax rates on work, savings and investment.
What would specific action look like? You'll see a number of suggestions in our submission, but I'll summarize here and would be happy to discuss this further in questions.
First, with regard to fiscal policy, Ottawa should be limiting the growth of federal employee numbers and payroll expenses by freezing federal department operating budgets for wages and salaries at their 2023 levels for five years. It should also be avoiding unnecessary and unproductive expenses. For example, the government should not be pursuing a national single-payer pharmacare program. It should be working with the provinces to achieve universal coverage but allowing people to continue to have private insurance. Ottawa should also transition federal employees' pension plans to shared-risk, shared-governance plans in which taxpayers bear less risk.
The government should be prioritizing funding for infrastructure projects under direct federal control, such as investments in capacity and added security for marine, rail and air transportation and for military assets. That means less direct federal spending when private investors or other levels of government are better suited to tackling local needs. If the government does decide to increase spending, it should fund new spending with a higher GST rate rather than with growth-inhibiting hikes in personal and corporate income taxes or with ad hoc taxes that send a signal that any potential sector might be subject to sudden taxes. That's not how we get investment.
A robust fiscal framework is going to allow us to pursue a number of ideas outlined in our submission that I'm going to try to highlight here.
For taxes in general, we need to limit inflation's stealth tax by indexing amounts that are otherwise not updated with inflation. On personal taxes, for example, we should be implementing a benefit shield, focusing on the Canada child benefit and the Canada workers benefit. This benefit shield would partly compensate workers for the loss of certain income-tested tax credits, but only for the first year after they take on more work, so it's a fairly fiscally prudent measure.
We should also allow workers to average their income over many years—and we've heard this come up before—so that any single large-earnings year is not going to lead to a disproportionate loss of benefits or higher taxes. We should also be revisiting the tax deduction granted for child care expenses, replacing it with a refundable tax credit for child care expenses.
Now let's move on to the corporate income tax. We should be implementing a temporary general investment tax credit applicable to all investments in depreciable assets, including intangibles, at a rate of 5%, in effect from now until 2025. We should be reducing the corporate income tax from 15% to 13%, starting in 2025 after the temporary investment tax credit has ended. We should also be establishing an IP-box tax mechanism whereby income from patents and other intellectual property generated by activity in Canada and used in Canada faces a lower corporate income tax.
One last idea, before I turn it over to questions, is that we should tie the small business deduction to a firm's age. For example, at five-year intervals, the threshold level of capital assets that qualifies for the small business deduction would rise, and the level of the deduction would fall. That would be regardless of firm size until they reach the standard corporate income tax.
Thank you for inviting me again. I look forward to your questions.