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Will Trudeau follow Trump on corporate tax cuts and deregulation?

Council of Canadians honorary chairperson Maude Barlow comments, “A global corporate tax ‘race to the bottom’ is taking place. This is a dangerous trend that will deepen inequality and favour the already favoured.”

That comment by Barlow is in response to the editors of the book ‘Winning the Tax Wars’ – Brigitte Alepin and Louise Otis – writing in The Globe and Mail today, “The 40-per-cent cut in corporate tax rates in the United States could usher in a new era of across-the-board tax exemptions for multinationals. Such a radical measure may also be powerful enough to lead to complete tax exemption for multinationals as states attempt to lure capital investment through ever smaller tax rates.”

Alepin and Otis highlight, “Between 1980 and today, the statutory tax rates of multinational corporations have dropped to 23 per cent globally, from an average of 38 per cent, before the U.S. tax reform.”

Trump’s tax cut for corporations drops their official tax rate from 35 per cent to 21 per cent (with state taxes, the new average American rate is 26 per cent). The combined federal and provincial tax rate for corporations in Canada now stands at 26.7 per cent and while that’s a marginal difference there will be pressure for that to be cut.

Aaron Wudrick, the federal director of the Canadian Taxpayers Federation, has commented, “Faced with the new American reality, this is cause for concern. Why invest in Canada and pay higher taxes when you can invest next door and pay less? This is especially true when competing for foreign investment. Last year, even before any big American tax cuts, the Trudeau government’s own Advisory Council on Economic Growth noted that foreign direct investment (FDI) is ‘a critical driver of economic growth’ and observed that Canada was ‘falling behind’ in securing FDI.”

At the time of last year’s federal budget, Finance Minister Bill Morneau commented he would exercise prudence “to ensure that we have the capacity to deal with the environment that we find ourselves in”. That was widely interpreted in the media as the federal government recognizing that Trump’s corporate tax cuts were on the way and that those cuts would have implications for Canada.

There will also very likely be corporate pressure to cut regulatory protections for Canadians. Wudrick says, “It’s not as if Canada can count on other advantages to mitigate being competitive on taxes; regulatory uncertainty, for example, helped kill large projects such as Energy East.”

John Manley, the former Liberal cabinet minister who now heads the Business Council of Canada, says, “Initiatives such as tax reform, changes to environmental policy and deregulation [in the United States] could have serious consequences for Canada’s economy.” His prescription? Cut corporate tax rates to stay competitive, streamline the regulatory approval process, negotiate free trade agreements with Japan, India and China, and adopt less restrictive climate policies.

We’ll see what the Liberals do regarding corporate tax rates in the upcoming federal budget (expected in March), but it has already signalled its intention to streamline the regulatory approval process, is pursuing ‘free trade’ agreements (including the Trans-Pacific Partnership that could be signed by March of this year), while its so-called “restrictive climate policies” have allowed for the approval of the 890,000 barrel per day Kinder Morgan Trans Mountain pipeline and the 760,000 barrel per day Enbridge Line 3 pipeline – that together would generate 39-52 megatonnes of upstream carbon pollution a year.

We should also keep in mind that when Trudeau met with Trump at the White House on February 13, 2017, their Joint Statement highlighted, “We will continue our dialogue on regulatory issues and pursue shared regulatory outcomes that are business-friendly, reduce costs, and increase economic efficiency without compromising health, safety, and environmental standards.”

Furthermore, in September 2017, World Trade Online reported, “The Canadian government is pushing for stronger regulatory cooperation provisions during the second round of NAFTA renegotiation talks, hoping to move beyond the US.-Canada Regulatory Cooperation Council established by the Obama and Harper governments in 2011, according to Canadian stakeholders. Canada is looking to include in NAFTA requirements for a regulatory cooperation council that is led at the political level, meets regularly and establishes agendas for future outcomes.”

The Council of Canadians will continue to campaign against neo-liberalism (corporate tax cuts, free trade, deregulation, privatization) and advocate for an economic policy for the 99 per cent, fair taxation, regulatory protection and fair trade.