Editor’s note: An earlier version of this story understated the percentage decrease in the U.S. corporate tax rate. The figure was 40 per cent.
The federal government lost an opportunity to help Canada regain its competitive edge over the United States by not cutting corporate taxes in the 2019 budget, according to Linamar Corp. CEO Linda Hasenfratz.
“I think it’s unfortunate that more attention was not paid to areas where Canada needs more of a competitive boost,” Hasenfratz told Automotive News Canada. “It’s important to have that competitive advantage.
“We’re a smaller player. ... We need that tax advantage to compete against bigger players that have different regulatory regimes. Addressing the competitiveness piece specifically around taxes is important.”
In March, the majority Liberal government unveiled its 2019 budget, which included $300 million over three years for rebates of up to $5,000 on some electric and hydrogen fuel-cell vehicles. But it did not have a corporate tax cut that some executives in the auto industry, including Hasenfratz, had called for.
Canada’s tax advantage disappeared when in late 2017 the United States cut its corporate rate by 14 percentage points, dropping it to 21 per cent from 35, Linamar CEO Linda Hasenfratz says.
According to the federal government, the net corporate tax rate in Canada is 15 per cent after tax abatements and a general tax reduction. While six percentage points lower than the United States’ rate, the amount many corporations owe in Canada is now higher than in the United States when accounting for provincial and state taxes. Provincial tax rates are generally higher than those in most states.
Larger corporations in Ontario, where most of the Canadian auto industry is based, pay an 11.5 per cent rate, putting the effective corporate tax rate for auto companies at 26.5 per cent. That’s about even with the 27 per cent combined rate corporations would pay in Michigan, and more than it would cost in Ohio, which has no state corporate income tax.
Hasenfratz did, however, praise the budget, the Liberals’ last before this year’s election, for including $631 million over five years for the Student Work Placement Program, which would expand work-integrated learning. In an economy with a low unemployment rate, she said, it is difficult to find both skilled and unskilled workers. Boosting integrated learning can help change that over the long term, Hasenfratz said.
“We need to do everything we can to make sure the people we have have the skills we need, whether that be through education and work-integrated learning, or retraining programs to give people new skills.”
Attracting skilled immigrants to Canada should be a top priority of both the federal and Ontario governments, Hasenfratz said, as it is another way to address the shortage.
She pointed to Guelph, Ont. — where Linamar is headquartered — which has one of the lowest jobless rates in Canada at four per cent, as a sign that workers are tough to come by.
“We need to bring people in,” Hasenfratz said. “I think our governments have been supportive of that, but there’s always more we can be doing in that regard.”