A headline from the Financial Post for April 1, 2018, reads, “Investment dollars are already flowing out of Canada in 'real time', RBC CEO warns”. Below that is written, “Dave McKay says a 'significant' investment exodus to the U.S. is already underway, especially in the energy and clean-technology sectors.” The article states:
The head of one of Canada's largest banks is urging the federal government to stem the flow of investment capital from this country to the United States—because, he warns, it's already leaving in “real time.”
RBC president and CEO Dave McKay discussed some of his biggest concerns about Canadian competitiveness, particularly those related to recent U.S. tax reforms, during a recent interview.
Ottawa has come under pressure from corporate Canada to respond to a U.S. tax overhaul that's expected to lure business investments south of the border.
McKay told The Canadian Press that a “significant” investment exodus to the U.S. is already underway, especially in the energy and clean-technology sectors.
The flight of capital, McKay added, will likely be followed by a loss of talent, which means the next generation of engineers, problem solvers and intellectual property could be created not north of the border, but south of it instead.
'We would certainly encourage the federal government to look at these issues because, in real time, we're seeing capital flow out of the country', McKay said.
We see our government going around the world saying what a great place Canada is to invest — yes, it is a great country, it’s an inclusive country, it’s a diverse country, it’s got great people assets.
'But if we don’t keep the capital here, we can’t keep the people here — and these changes are important to bring human capital and financial capital together in one place.'
Since the election of U.S. President Donald Trump, Canada's investment landscape has been dealing with deep uncertainty related to the ongoing renegotiation of the North American Free Trade Agreement.
But many point to Trump's recent U.S. tax measures as potentially more dangerous, fearing that dramatic corporate tax cuts in the U.S. will eliminate Canada's advantage.
Canada's competitiveness challenges go beyond the high-level, tax-rate changes in the U.S. bill, McKay said.
For instance, he pointed to another important element he said is encouraging capital to flow out of Canada—a change that enables U.S. companies to immediately write off the full cost of new machinery and equipment.
'The acceleration of that in the U.S. completely changes the investment returns that you see on major investments,' said McKay. 'I think that alone may shrink competitiveness.'
Tax expert Jack Mintz said the U.S. change allows firms in all sectors to expense the full cost of new equipment. In comparison, he said, Canada has a two-year write-off for equipment for just the manufacturing and the processing sectors.
Mintz, a University of Calgary professor, said he believes the expensing of capital investments is encouraging a lot of companies to shift their investments to the U.S.
Although the business community pressed federal Finance Minister Bill Morneau to take specific steps in his February budget to address the competitiveness concerns, their efforts went unrewarded. Indeed, Morneau has had to defend the budget against complaints it didn't do enough to protect Canada from the U.S. tax changes.
A spokesman for Morneau did the same, arguing that Canada's corporate tax rates remain competitive and that the country has led the G7 in growth.
'There will be no knee-jerk reactions from this minister, and we are doing our homework,' Daniel Lauzon wrote in an email. 'This includes listening to, and hearing from, the business community on how the competitive environment is evolving.'
John Manley, president of the Business Council of Canada, said the issue of competitiveness was 'absent' from the federal budget.
'We're always in this difficult competition to attract investment and to retain investment—and it's not be taken lightly because investment can move quickly,' Manley said.
Regardless of the cause, some experts are seeing signs in the economic data that suggest capital is already flying south.
BMO chief economist Douglas Porter said it’s too early to draw conclusions, but the fact the Canadian equity market and currency have both been on the weak side this year supports the possibility that capital is leaving the country.
The Canadian dollar is one of the few currencies in the world to weaken against the U.S. dollar this year, and for no immediately apparent reason, Porter said.
None of the provincial budgets released so far took steps to improve Canada’s competitiveness, such as tax relief, he added.
There you have economist after economist, and a former Liberal cabinet minister from the 1990s, explaining the path forward for the government, explaining to the government that if you do not make Canada a competitive place in which to do business, investment will go elsewhere. It's already happening in real time. Shortly after that, the brain power will follow for those good-paying jobs.
To me, that is something that is extremely concerning. That is something the finance minister continues, time after time, to ignore. Even yesterday in question period we were talking about it, when the finance minister was asked a question about a statement on the Liberal Party website about balancing the budget in 2019. He said we're still on track. But report after report says it's going to be 2045 before this gets balanced, despite new revenue sources coming on with new taxes squeezing more and more out of the pockets of hard-working Canadians, Canadians who are being charged more for the everyday activities in their lives: driving to and from work; getting their kids to sports, music, or dance; going from point A to point B, especially in rural communities where transit is not an option, or rarely an option, where vehicles are relied on to get places, where natural gas is not an option, where most people heat their homes with oil or propane, where those people struggling to get by are being forced to pay more. As the tax is applied throughout the marketplace, the price increases will cascade throughout it.
We're seeing it in Ontario. Over and over again, people are being forced to make a decision on whether they pay their electricity bill or their rent; do they eat or do they get their prescriptions? On the lower end of the scale, they continue to get hurt the most.
That is all due to terrible government policy, yet the solution we hear, especially in Ontario, and it's creeping up to the federal scene because many of those same workers, those political staffers, went from Queen's Park right here to Parliament Hill, is yet another government program, not allowing government to clear the path and get out of the way. Report after report has said, had the government done nothing here in Ontario, we'd be in a much better situation. I'm sure businesses and manufacturing would say that. I have no doubt that everyone at this table from Ontario has met with some manufacturers and talked to them about the hardships they are facing.
This shows how important it is that we talk about the investment that is leaving Canada in real time. This is a serious concern, Mr. Chair. It's extremely concerning.
I'm going to read a story from the National Post that lays out the case of why it should be Kinder Morgan that actually builds the pipeline.
You're actually lucky. You are saved from that. It seems to have disappeared from my news feed, but I'll get you another one.
It was done by Andrew Coyne and actually layed out the case as to why Kinder Morgan was the right company to build this project. I will just read you the latest here.
Oh, there we go. Thank you, Shannon.
This is from from May 18, 2018.
Andrew Coyne: The Liberals need a pipeline to be built, and they need Kinder Morgan to build it.
Just to recap: In the quest to ship Alberta crude to overseas markets, the federal Liberals are down to one pipeline, having killed off Northern Gateway and allowed Energy East to die.
That pipeline, the Trans Mountain expansion, is now itself in considerable doubt, in part owing to the Liberals’ previous encouragement (previous, that is, to coming to power) of its most determined opponents: by their delegitimization of the National Energy Board, which approved it; by the prime minister’s apparent endorsement of the extra-legal doctrine of “social licence;” and by his apparent endorsement of another position found nowhere in law: that First Nations have a right, not just to be consulted, but to approve or disapprove of projects on lands to which they claim title.
It gets worse. With just one pipeline left to build, and having done their best to ensure it won’t be built, the Liberals — having since declared (since, that is, coming to power) that in fact it will be built — are now down to one company to build it. One, or maybe none.
The company that was going to build it, Kinder Morgan, last month said it will not proceed without some assurance that it can proceed — that it will not be subject to such delays, owing to the obstructionist tactics of the NDP government of British Columbia—
Sorry, Richard.
—as to make the whole thing uneconomic. It must have such assurance, the company says, by May 31.