Even though many countries in the euro zone are still struggling, Canadian executives continue to look favourably on the current Canadian and U.S. economies. However, with 2013 growth expected to reach only 1.6 per cent in Canada, executives are split on whether the federal government should focus on stimulus measures or austerity to help boost performance.
Most are in favour of spending cuts in general and cutting taxes to spur economic growth. They also see the benefits of spending strategically to support Canada’s economic ecosystem – the interdependent relationship between our need for infrastructure projects to spur growth and our need for skilled workers to execute these projects. Specifically, executives support investing in:
Infrastructure – including highways and roads, shipping ports, light rail or subways in cities, airports, and customs clearance and access points to the United States.
Skills training – to develop the skills base within the country specifically to help plan and complete these infrastructure projects and meet business needs.
Immigration – to supplement the skilled work force required for many of these long-term initiatives This approach and sentiment is shared by the government and is consistent with the federal budget underpinnings released March 21.
The government of Canada’s Economic Action Plan 2013 stresses expanding existing infrastructure investments over a longer period of time, aligning training with the skills employers need to fulfill these infrastructure initiatives and other market needs, and attracting more skilled immigrants and students to Canada.
Specifically, the plan directs the majority of its stimulus efforts – more than $53-billion in investments – at infrastructure projects over 10 years starting in 2014-15, funding everything from roads, public transit and community infrastructure to first nations and federal public infrastructure.
The investment in skills training includes the Canada Job Grant, which connects skills training with employers and jobs across Canada, and support for internships and apprenticeships to connect recent graduates with jobs that need their skills. The Canada Job Grant could provide up to $15,000 per person or more for training. To be eligible, businesses must have a plan to train unemployed and underemployed Canadians for an existing or better job. The budget also expands and extends the temporary hiring tax credit for small businesses.
The Business Immigration Program provides a new startup visa for immigrant entrepreneurs and the International Education Strategy proposes $23-million over two years to attract top-level talent who wish to study and conduct world-class research in Canada.
While they do not approve of austerity strategies such as cutting health care and education, and raising taxes to reduce the deficit, Canadian executives do support establishing freer trade with Latin American and Asian countries, and providing more generous tax incentives for research and development, capital and equipment, and support for the manufacturing sector.
In line with this, the government’s plan aims to address these areas by developing major free-trade deals with the European Union, India and Japan, and strengthening our links to emerging markets in Asia and Latin America through our participation in the Trans-Pacific Partnership; $1.4-billion in tax relief to Canada’s manufacturing sector extends the temporary accelerated capital cost allowance for machinery and equipment to 2015; the depreciation rate on manufacturing or processing machinery and equipment will be extended for two years to help this sector retool and remain competitive; and funding programs will be provided that contribute to innovation and support R&D, including $324-million over eight years to support new clean technologies.
Canadian executives ranked Toronto and Calgary as their top two locations for doing business – and rated them more highly than New York, London and Hong Kong. Close behind was Vancouver and international centres including Frankfurt, Singapore, Chicago and Boston. Cities in the middle tier include Los Angeles, Mumbai, Sao Paulo and Paris, while Rome, Mexico and Moscow rounded out the bottom of the list.
The prevalence of Canadian cities at the top of the list is easy to understand. KPMG’s Competitive Alternatives 2012 – Focus on Tax, found that Canada has the second-lowest overall tax rate behind India, making it one of the most competitive business locations in the world. Canada also ranked number one for R&D tax incentives, as well as for the digital sector, and fourth for both corporate services and manufacturing.
Although the key elements of the 2013 federal budget align with the sentiments of Canadian executives regarding spending restraint and raising taxes, it is important to note that the budget does broaden the tax base by closing various “tax loopholes.” As well, the infrastructure spending that the budget highlights are spread over a decade, which leaves these projects open to the effects of declining economic performance. If the Canadian economy does not improve and it looks like the federal government may be in danger of not balancing the budget by 2015 as promised, the tax increases and spending cuts that executives object to could be back on the table.
Elio Luongo is KPMG’s Canadian managing partner, tax. The 30th Quarterly C-Suite Survey was conducted by Gandalf Group, sponsored by KPMG, and published by Report on Business and Business News Network.