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Financial Post, Weekly edition, Sat 02 Mar 96, page 6

Keywords: Economic conditions Corporate tax Canada United States

Low taxes? Try Canada

Bud Jorgensen

Few people would pick Canada's federal government as having the lowest corporate tax rates among Group of Seven industrialized countries.

But it does. Even when provincial taxes are tacked on, Canada still ranks fourth behind Germany, Japan and Italy.

The chart above is based on calculations done by the Department of Finance, which suggests that policymakers in Ottawa are not likely to favor corporate tax cuts.

If tax levels are a political problem for Finance Minister Paul Martin, the flak will probably be over personal income taxes or the goods and services tax.

The election of the Mike Harris Conservatives in Ontario demonstrated that tax cuts are a potent political issue. The fact that U.S. flat-tax advocate Steve Forbes is doing well in the presidential primaries also reinforces the view that individuals are feeling overtaxed.

But the Department of Finance is not likely to buy an argument that corporate Canada has a tax disadvantage.

Still, the Canadian Manufacturers' Association begs to differ.

``The G7 countries are not our only or even our most aggressive competitors for investment,'' the CMA said in a position paper sent to Ottawa. ``Ireland, Chile, Hong Kong and many other nations represent real alternatives for international investment, and their tax rates are far lower than Canada's.''

That line of reasoning is not likely to appeal to strategic thinkers in Finance because 88% of Canada's exports last year went to other G7 countries. Those same countries provided Canada with 80% of its imports.

The counter-argument is that emerging economies such as Chile represent growth potential at the margin for exporters and thus provide greater opportunities for new business.

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