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Prospects for the Canadian Economy are High - 3 February 2011

"Canada’s international reputation as a destination for capital and investment is better than it has been for a generation," said Finn Poschmann, vice-president research at the C.D. Howe Institute.

And as Craig Wright, chief economist at RBC Financial Group, told a conference, if you’re not getting more optimistic about the economic picture, you’re not paying attention.

In the past few days, there have been glowing endorsements of the Canada’s competitive advantage in the Wall Street Journal and the Washington Times, which encouraged its readers to "Go North, young man, Go North".

The basis for much of the praise was the reduction in federal corporate income tax rates from 22% in 2007 to 16.5% today.

Not only is inward investment on the rise but the reduction in rates has not diminished the federal treasury. On the contrary, corporate income tax revenues were up 12% in the first six months of 2010/11, despite previous cuts in the rate. The creation of a positive environment for investment, jobs and growth has resulted in an explosion of business investment — up 20% in the third quarter of 2010, which should enhance Canada’s competitive position.

These positive developments are not just being noticed by the U.S. media. Accountancy giant KPMG ranks tax competitiveness internationally and its 2010 study saw Canada rise two spots to second place, behind Mexico, but ahead of all its major competitors, thanks to recent changes to the tax system.

As the Wall Street Journal noted, relative levels of taxation matter because companies and investors send capital where it can achieve the highest returns. KPMG clearly heeded its own survey by moving its entire back office to Toronto.

"What the markets are telling you is that Canada is a much safer place to park your money from a fiscal balance sheet standpoint," he said in a note to clients, pointing out the "unprecedented" discounts on Canadian government debt, compared to U.S. Treasuries.

Source: The National Post

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