Money Canadian banks warn about negative fallout from U.S. tax reforms

16:06  14 february  2018
16:06  14 february  2018 Source:   CBC

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"Maintaining longer term fiscal sustainability, increasing the efficiency of tax systems through revenue-neutral tax reforms and well-thought- out investment Sears pensioners try to recoup missing money by going after billions paid to shareholders read comments. Canadian banks warn about negative

Business Council of Canada president John Manley said he believes the fallout from the U . S . tax changes on the Canadian economy could be even bigger than the negatives associated with the potential demise of the NAFTA. Bank of Canada predicted NAFTA uncertainty and the tax reforms

Donald J. Trump wearing a suit and tie: President Donald Trump was speaking during a meeting with state and local officials about infrastructure when he made the remarks.© Carolyn Kaster/Associated Press President Donald Trump was speaking during a meeting with state and local officials about infrastructure when he made the remarks.

Two of Canada's big banks are sounding the alarm over the negative impact that Canada's economy will see as a result of new tax reform measures in the U.S. under the Trump administration.

Quotes in the article

Canadian Imperial Bank of Commerce

CM

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Canadian business associations have warned that the recently announced tax changes in the U . S . may These warnings follow the Bank of Canada ’s first public comment on the impact of American tax We will continue to follow developments with both NAFTA and the U . S tax reforms , and will

The warning follows on the heels of the Bank of Canada ’s first public estimate on the impact of This week, the bank predicted NAFTA uncertainty and the tax reforms would encourage firms to fallout from the U . S . tax changes on the Canadian economy could be even bigger than the negatives

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Analysts from both Toronto-Dominion Bank (TD) and the Canadian Imperial Bank of Commerce (CIBC) put out reports this week highlighting how Canadian businesses have lost their competitive advantage to their U.S. peers and how this could impact economic activity.

"Canada's formerly favourable position in corporate taxation has eroded considerably, with the U.S. now holding the edge," said economists at TD.

"[Tax reforms] along with growing NAFTA uncertainties, increases the likelihood of a slow bleed of investment from Canada to south of the border," they said.

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Canadian banks warn about negative fallout from U . S . tax reforms read comments. Latest U . S . trade complaint says Canada dumping welded pipe read comments.

U . S . tax reform increases chance of 'slow bleed' of investment from Canada : TD February 13, 2:53 PM ET read comments. Most Viewed. Canadian banks warn about negative fallout from U . S . tax reforms read comments.

Strategists at CIBC, meanwhile, pointed out that a lower tax rate in the U.S. makes Canada a less attractive destination to locate headquarters, manufacturing in the country has become less competitive, and Canadian firms will see their U.S. peers more competitive on mergers and acquisitions now.

"With a revitalized tax code, CEOs have another reason to locate in, or worse yet, relocate to the US," said Ian de Verteuil of CIBC.

Tax cuts

In December, U.S. lawmakers passed the $1.5-trillion US tax reform bill, known as the tax cuts and jobs act (TCJA) — making the biggest change to the U.S. tax code in over 30 years.

The complex legislation cuts the U.S. corporate income tax rate to 21 per cent from 35 per cent, and gives other business owners a 20 per cent deduction on business income, among other changes.

Prior to this law, the U.S. has one of the highest business tax rates among G7 countries, with no decline over the past 20 years. Canada, meanwhile, had one of the lowest corporate tax rates in the group and rates had been in consistent decline for several years.

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The warning follows on the heels of the Bank of Canada ’s first public estimate on the impact of the U . S . tax Business Council of Canada president John Manley said he believes the fallout from the U . S . tax changes on the Canadian economy could be even bigger than the negatives associated

The warning follows on the heels of the Bank of Canada 's first public estimate on the impact of This week, the bank predicted NAFTA uncertainty and the tax reforms would encourage firms to fallout from the U . S . tax changes on the Canadian economy could be even bigger than the negatives

"For Canadian companies, the focus has so far been on companies that win from the lower overall level – because they have large U.S. operations and were accruing taxes at a higher rate," said Verteuil, listing companies like New Flyer Industries — which gets over 90 per cent of its revenue from the U.S.

But he also highlighted that there was a "far more insidious" aspect of the tax reform for Canadian firms, as businesses become "tentative on betting too heavily" that Canadian exports will have long-term "unfettered" access to the U.S.

New complaints

Meanwhile, the reports come as U.S. President Donald Trump made headlines on Monday after complaining about Canadian trade practices.

He threatened implementing a new international tax that has revived fears of new American import duties.

Derek Burleton, economist at TD said the risk to Canada from U.S. tax reductions does put the heat on the Canadian government to take action in the upcoming budget.

"We do not believe that a tit-for-tat reduction in tax rates is necessary to guard against these risks, since taxes form only one part of the competitiveness equation," he said.

"Maintaining longer term fiscal sustainability, increasing the efficiency of tax systems through revenue-neutral tax reforms and well-thought-out investment in human capital and skills training can achieve the similar aim of improving competitiveness," he added.

Finance Minister Bill Morneau is scheduled to sit down with leading economists in Toronto on Friday for a pre-budget meeting.

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