REPORT: CIBC Warns US Tax Cuts Are Eliminating Canada’s Competitive Advantage

CIBC Capital Markets report says manufacturing could head south, something we’ve already started to see.

A new report by CIBC Capital markets says the tax reform passed by the Trump Administration has eroded the competitive edge Canada once had.

As noted by BNN, “In a report to clients, equity strategist Ian de Verteuil wrote that while much of the focus has been on which Canadian companies could get a boost from the reforms, competitiveness will take a meaningful hit on a number of fronts, including a likely end to so-called tax inversions. “We certainly believe that some Canadian companies with large U.S. operations will now consider moving their domicile to the U.S., were they to make large acquisitions in the U.S.,” de Verteuil wrote.”

Additionally, “Changes to the treatment of capital investment could drive manufacturing south, de Verteuil warned.”

Said de Verteuil, ‘“As part of U.S. tax reform, businesses will be allowed, for tax purposes, to immediately write-off the total investment in equipment… this means that in the first year, the cash outlay for the same piece of equipment in the U.S. could be 20 per cent lower than in Canada,” he wrote. “We still believe that U.S. manufacturers will, on average, have a material tax advantage versus Canadian peers.”’

He pointed out that even though many Canadian companies may not be worse-off than the US, they are now on an “equal footing.” However, that means we have lost the advantage we had when US tax rates were higher. Also, the US has been implementing large-scale de-regulation, while Canada is imposing more regulations and implementing a carbon tax that takes more and more money out of people’s pockets and increases the cost of doing business.

When that increasing regulatory and tax burden is added to the growing uncertainty over projects in the resource sector, and absurd energy costs – particularly in Ontario – Canada is becoming a less and less attractive place to invest.

Spencer Fernando

Photo – Kurtis Garbutt (flickr) cropped