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Business Groups Warn that U.S. Tax Reform May Have More Impact on Canada than End of NAFTA

NAFTA
January 20, 2018

Canadian business associations have warned that the recently announced tax changes in the U.S. may end up negatively impacting the Canadian economy more than the possible termination of NAFTA. Much attention has been focused on the Republican’s decision to decrease corporate taxes to levels comparable to Canada’s.

The Business Council of Canada

John Manley, the President of the Business Council of Canada has said that he believes that the fallout of the tax changes could eclipse the potential effects of the end of NAFTA. Manley, who served as a Liberal finance minister in Jean Chretien’s government notes that while NAFTA is particularly important for business in industries such as the auto sector and agriculture, concerns raised by other industries around tariff changes could be adjusted by exchange-rate movements “in a single afternoon”.

Manley told Global News:

“I think they are going to quickly need to think about what they do in the face of the U.S. tax reform. I don’t detect any appetite for lowering Canadian taxes on business, but I would be very surprised if Mr. Morneau isn’t already trying to figure out what he has to do about this.”

The Canadian Chamber of Commerce

Perrin Beatty, the President of the Canadian Chamber of Commerce has said that the recently announced U.S. tax reforms should be a “wake-up call” to motivate Canada into finding ways of making it more attractive to investors. Beatty, a former minister in Brian Mulroney’s government, noted that American tax reforms were a “serious factor” before the reform was even passed.

Beatty has argued that Canada is headed “in the wrong direction” by driving up business costs through recent reforms on taxes for private corporations, minimum wage increases in some provinces, and other regulatory “hurdles”.

The Federal Government

Despite vocal concerns, the federal government insists that Canada has several advantages, including an educated workforce, and continued competitive tax rates in comparison to other G7 countries (even after the U.S reforms).

A spokesperson for federal Finance Minister Bill Morneau said:

“Our government has been and will continue to carefully assess details of the bill south of the border, and we will consider its implications carefully…[w]e will take time to fully understand and study the potential impact of this plan for Canada.”

The Bank of Canada on NAFTA

These warnings follow the Bank of Canada’s first public comment on the impact of American tax changes on Canada.

The Bank of Canada announced earlier this week that economic growth is expected to average around 2 ½ percent in the short term, prior to slowing to a “more sustainable pace.” However, the Bank also acknowledges uncertainty due to the unknown status of NAFTA.

The Bank’s future projections are, at the moment, based on the premise that current trade agreements will remain in place during the relevant timeline. However, the Bank notes that many companies have said that uncertainty surrounding NAFTA talks has factored into their investment and trade decisions, triggering the Bank to include some negative judgment in their most recent business investment assessment.

Despite uncertainty with both the actual outcome as well as the timing of that outcome, the Bank is working towards determining how the economy will be impacted by changes to trade policy. The Bank believes that while the economic outlook is expected to warrant higher interest rates over time, some “continued policy accommodation” will likely be needed to keep inflation in check and keep the economy operating close to its potential].

We will continue to follow developments with both NAFTA and the U.S tax reforms, and will provide updates as they become available.  In the interim, if you have begun to anticipate what impact these potential major changes may have on your business in Canada or the U.S., contact the knowledgeable team at Feigenbaum Tax Law. To make an appointment, contact us online, or call our office toll free at (877) 275-4792.

 


Tagged: NAFTA, tax reform