2-27-18 6:31 PM EST | Email Article
By Paul Vieira 

OTTAWA -- In response to calls from Canadian businesses for U.S.-style tax cuts, Canadian Finance Minister Bill Morneau said that evidence, not emotion, would determine how Canada acts, as he delivered the government's budget plan for the coming fiscal year.

Mr. Morneau proposed to reduce spending now that the economy is on firmer ground. He also outlined a series of policy measures aimed at breaking down barriers to women entering the workforce and earning as much as their male counterparts.

The budget plan, presented Tuesday in the Canadian legislature, was light on measures to bolster Canada's competitiveness. Business leaders warn investment in Canada is under threat following a sweeping tax overhaul the White House signed into law last year, and some called for immediate corporate tax relief in response. Mr. Morneau and the Liberal government signaled they aren't ready to meet corporate Canada's demands.

In a speech to lawmakers, Mr. Morneau said the government was aware of the near-term headwinds the economy faces, led by the uncertain nature of negotiations to rewrite the North American Free Trade Agreement, and tax changes signed into law late last year that put American corporate-income tax rates below those in Canada.

"We will be vigilant in making sure Canada remains the best place to invest, create jobs and do business -- and we will do this in a responsible and careful way, letting evidence, and not emotion, guide our decisions," Mr. Morneau said.

Business groups, some economists and some political analysts said the dearth of measures aimed at reducing companies' tax and regulatory burdens was a setback.

"This budget fails to recognize there's been a tectonic shift in public policy in North America," said James Moore, a Canadian cabinet minister in the former Conservative government and now an adviser at Dentons, the global law firm. "For the business and investment community, a clear point of insecurity is coming about Canada as an investment market, certainly relative to the U.S."

It wasn't long ago that Canadian officials crowed about the country's corporate tax advantage. They would point to the 2009 decision by the Canadian coffee chain Tim Hortons Inc. to return its headquarters to Canada from Delaware largely because Canada offered a more favorable tax environment. Burger King Worldwide Inc. acquired Tim Hortons in 2014.

That was when the average combined U.S. federal-state corporate tax rate was 38.9% versus a 26.7% comparable Canadian rate, according to calculations by economists at TD Bank. The combined average U.S. rate has now declined to 24.9%. Meanwhile, Canada's rate is now above both the U.S. rate and the 23.8% average corporate tax rate among members of the Organization for Economic Cooperation and Development, to which Canada and the U.S. belong.

At a news conference before his budget speech, Mr. Morneau said he believed Canada's corporate-tax regime was already "clearly competitive" with the U.S. and other developed-world economies.

"What we are going to do is make sure we are able to stay competitive over the long term," he said, adding more research and analysis is required.

He added any contemplated tax changes would have to fit in with a responsible fiscal approach. He said the Republican-led approach on tax policy will lead to a much higher U.S. deficit. "That is not our approach," he said.

Canada said its budget deficit would decline over a five-year period, from an estimated level of 18.1 billion Canadian dollars (US$14.2 billion) in fiscal year 2018-19 to just above C$12 billion in 2022-23. The Liberals promised in the 2015 campaign to achieve a balanced budget by the 2019 election, but took a different tack as they opted to add fiscal stimulus to stoke growth.

The biggest thrust of the budget was its focus on gender equality, including steps to encourage more women in the workforce. One of the biggest initiatives is legislation that would mandate pay equity in sectors that are regulated under federal law. That includes banks, telecommunications providers, airlines and railroads, among others. The government said this would affect 1.2 million employees.

The government is also bolstering existing parental-leave benefits, giving couples with newborn children the chance to take an extra five weeks of paid parental leave to encourage more men to be involved in child care. The government expects the measure to be available to couples starting in June 2019, or months before the next election.

Kim Mackrael contributed to this article.

Write to Paul Vieira at paul.vieira@wsj.com


(END) Dow Jones Newswires

February 27, 2018 18:31 ET (23:31 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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