Jack Mintz, director and Palmer Chair of the School of Public Policy, University of Calgary.Deborah Baic/The Globe and Mail
Canada is in no danger of being "hollowed out" by foreign takeovers, so Ottawa should reduce barriers and encourage a greater inflow of outside capital, one of the country's top tax experts says.
University of Calgary economist Jack Mintz published an analysis Tuesday that suggests Canadian companies are investing far more money in other countries than foreign firms are spending to buy Canadian firms. Essentially, Canada is hollowing out other countries rather than being hollowed out itself, he said.
The report comes in the midst of a widespread debate about the merits of a proposed takeover of Canada's biggest fertilizer firm, Potash Corp. by Australian mining giant BHP Billiton
Prof. Mintz's analysis shows that Canada ranked 46th among 92 countries when it comes to the amount of foreign direct investment coming into the country (measured by a proportion of gross domestic product, on average from 2004 to 2008). That suggests there is lots more room for foreign investment here.
By contrast, Canada is 23rd on the "outflow" list - which looks at outside investments by domestic firms - underlining our success in buying businesses elsewhere.
Over all, "foreign direct investment is a net benefit to the Canadian economy" Prof. Mintz said in an interview. "There's nothing to fear from it … it adds to economic growth."
Companies such as Thomson Reuters Corp., Barrick Gold Corp., Agrium Inc. and Research In Motion Ltd. have shown that Canadian businesses can be international players, he said, so the country should not be defensive in keeping out foreign companies.
Prof. Mintz, who heads U of C's School of Public Policy, is a former president of the C.D. Howe Institute and has on many occasions advised the federal government on tax policy issues.
To encourage more foreign investment in Canada, he said many barriers should be dropped completely, including restrictions on foreign investments in the telecommunications and transportation industries.
There may be reasonable arguments for leaving some restrictions on media or cultural industries, he said, acknowledging that Ottawa should be able to reject some takeovers for national security purposes - as it did in the case of the proposed takeover of aerospace firm MacDonald Dettwiler and Associates Ltd. by a U.S. company in 2008.
Canada should also examine its withholding-tax rules, which make our business environment unattractive to some foreign investors, he said. Reducing these on a bilateral basis would also benefit Canadians investing abroad, he added.
Prof. Mintz argues that there should be no hard-and-fast rule against state-owned companies buying Canadian firms, because some of those companies - such as Norway's Statoil ASA, Abu Dhabi National Energy Co. and South Korea's Korea National Oil Corp. - have helped boost Canada's industrial base in the past. But he acknowledged that Ottawa should be able to block government-controlled firms or sovereign wealth funds that get state subsidies or tax advantages that let them outbid commercial entities.
"The important thing is that we make sure the best managers come in to operate companies," Prof. Mintz said. "If you have some companies that are able to buy up others simply because they are tax-exempt, or they have special government support, then you are not necessarily getting the best manager any more."
He said Saskatchewan does not have a strong case to try to block the Potash Corp. takeover by BHP Billiton. He disagrees with much of the analysis in a Conference Board of Canada report that said the deal could cost the province $2-billion or more over the next 10 years.
The market should decide who will be the best operator of those assets, he said.
Prof. Mintz believes Canadian worries about foreign investment stem from earlier eras when the country was a net importer of capital, and sectors such as the oil industry and manufacturing were primarily foreign-owned. "We're a different economy 50 years later," he said.