Canada’s corporate tax rate, reduced from 19% to 15% in 2012, currently creates a tax burden that is the second-lowest among developed countries, according to a recent KPMG survey. The central bank has held the main interest rate at only 1% for the past 2 years.
Taxes for businesses and individuals have been lowered, and government funding has encouraged the purchase of new technologies. According to the Canadian Finance Minister Jim Flaherty, the government has done its part and the private sector needs to invest in growth. The government will be reluctant to stimulate the economy further, and instead, will likely refocus its efforts on debt reduction. Recent comments from Mark Carney, Bank of Canada Governor, suggested that large cash holdings by corporations are negatively impacting growth and should be invested or returned to shareholders.
However, an internal survey of led by the Canadian Council of Chief Executives found that Canada’s largest companies are in the midst of more than $110-billion in capital expenditures in a 3-year period that started in 2012 (which is double the $63.7 billion spent by Ottawa and the provinces during the federal stimulus spending int he past 3 years). Elio Luongo, KPMG’s Canadian managing tax partner postulates that while Canadian taxes are low, uncontrollable factors may be hurting Canada’s international competitiveness, such as labour rates, the high dollar, transportation costs, and real estate prices.
