The Chamber of Commerce of Metropolitan Montreal recently submitted its pre-budget recommendations to the federal government. Given the uncertainty hanging over the economy, the Chamber believes that rather than adopting a wait-and-see attitude, the government needs to be proactive.
In its brief, the Chamber suggests five areas of focus for stimulating the Canadian economy:
- supporting private investment and innovation
- encouraging the internationalization of businesses
- accelerating strategic investment in infrastructures
- increasing the competitiveness of the Canadian tax system
- establishing and respecting a plan to balance the budget
Here are four of the main ideas proposed by the Chamber:
Develop a federal aerospace strategy
To succeed in a 21st century economy, Canada has to look to high-value-added sectors. Aerospace is chief among them. While there is ongoing concern about the lack of innovation in the Canadian economy, the aerospace sector alone accounts for 70% of R&D spending in the country.
However, competition is stiff. As a global market – 80% of Quebec’s aerospace production is exported – the aerospace sector needs the Government of Canada’s support as an investing partner. To ensure a prosperous future for this strategic sector, the government needs to commit to a meaningful national aerospace policy.
Make Montréal the home of the Canada Infrastructure Bank
Recently announced by the Government of Canada, the Canada Infrastructure Bank will be important leverage in financing and building new infrastructure that will boost the Canadian economy’s productivity and competitiveness.
While the government seems to be encountering difficulties coming up with the planned funding for infrastructure, the Bank needs to be established in the environment that is most conducive to its success. The university capital of Canada and the home to the two largest engineering firms in the country and head offices of a number of large companies involved in major infrastructure projects, Montréal offers the conditions to enable the Bank to get up and running quickly.
Generally speaking, innovation and internationalization go hand in hand in companies. Despite a global context of uncertainty for free trade, the government needs to make the internationalization of businesses a priority.
First, it has to ensure that the appropriate tools are in place to enable companies to break into new markets. To do this, the government needs to double the amounts earmarked for CanExport, continue to work closely with Canada’s World Trade Centers and immediately come up with the funds to create tools that will smooth access to European markets for local businesses.
Second, while continuing in its efforts to protect the NAFTA, the Government of Canada needs to be proactive in its search for new economic partners. It should begin negotiations as soon as possible to strike a free trade agreement with the U.K. and allocate funds to reinstate negotiations with our partners in the Trans-Pacific Partnership.
Ensure our tax system is competitive
Operating costs that are among the lowest in North America and a competitive tax system make Montréal a destination of choice for investing. But we need to be clear in our thinking: the increase in the top marginal tax rate makes it hard to attract foreign talent. Plus the new American administration’s promise to dramatically cut corporate taxes is anything but reassuring.
Given these challenges, the Government of Canada needs to take the necessary measures to ensure Canada’s tax competiveness. First, it should reduce the tax rate for small businesses from 11% to 9%, fulfilling an electoral promise. Then it needs to bring the top marginal tax rate below the psychological barrier of 50%. Finally, it needs to turn its efforts as soon as possible to creating a tax framework for the digital economy, to address distortions that favour certain types of businesses over others.
Conclusion
Canada cannot be paralyzed by the reigning uncertainty in the global economy. On the contrary, it needs to take the bull by the horns and introduce the measures necessary to build an open, dynamic and competitive economy.
The Chamber’s pre-budget recommendations can be consulted by clicking this link (in FR only):
http://www.ccmm.ca/~/media/files/news/2017/ccmm_recommandations_federales_prebudgetaires_2017.pdf