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Canada’s answer to U.S. tax plan won’t come till fall, Morneau says

Ottawa’s response to U.S. tax cuts won’t come until the fall as Finance Minister Bill Morneau said his department is still studying their impact on Canadian competitiveness.

Mr. Morneau told the Toronto Region Board of Trade Thursday that he’s listening to business leaders from many sectors in order to understand how the U.S. tax changes are affecting business decisions north of the border.

Major tax changes were adopted this year in the United States that effectively erased Canada’s corporate tax advantage.

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The minister said this work is expected to continue through the summer until September or October. That timeline suggests the government could release its plan as part of the minister’s fall fiscal update, although his office said no final decisions have been reached.

“We know that the change in the United States is very significant,” he said. “We need to understand that so that we can deal with it appropriately. It’s not just about tax rates. … The good news is we think that we are still competitive. But we do need to think about the challenges that we’re presented with.”

The Liberal government is facing strong pressure from Canadian CEOs to lower corporate taxes and reduce regulation. Mr. Morneau acknowledged that he frequently hears concern – including from some in the room at the board of trade – that Canada must respond to those lower U.S. rates.

Yet Mr. Morneau stressed Thursday that the issue of competitiveness is broader than simply comparing rates.

He said competitiveness also means Canada must have an educated workforce, strong skills-training programs and support for scientific research.

He also noted that the U.S. tax package included other elements, such as incentives that make it easier for businesses to write off the cost of capital investments.

Another consideration is the fact that the tax cuts are projected to increase the size of the U.S. federal deficit, Mr. Morneau said.

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“The scale is big. The scale precipitates a very significant possibility of a big, big deficit,” he said. “So there’s some elements that made sense. There’s some other elements, we’re still working our way through.”

The Liberals’ February budget said the Finance Department would be conducting a review “over the coming months” of the U.S. tax reforms, but Mr. Morneau later told reporters that there is still more work to be done.

“We’re not at the stage where we have anything to announce in terms of how our system currently looks in comparison,” he said. “What I will be doing over the course of the next few months – between now and September, October – is making sure that I’m fully understanding the impacts on businesses and sectors and doing that homework to make sure that we stay in a positive situation.”

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