Budget 2017 designed to turn U.S. protectionism into a boon for Canada

March 30, 2017

With President Trump's promise of an “America First” approach to economic policy, Canada may be poised to become a more attractive investment to the global market. This protectionist stance is something partner and National Manufacturing Leader Mike Gillespie addressed in his article 2016: A New Age of Protectionism.

Not knowing what President Trump would be proposing, Gillespie noted, “The coming year is shaping up to be a puzzle for Canadian exporters and export manufacturers, if only because there is a higher than normal level of volatility regarding changes to international trading practices.”

With the 2017 federal budget taking a wait-and-see approach in respect to tax, will this uncertainty create success in the Canadian economy?

“When you look at the global environment, the U.S. has pulled out of the Trans-Pacific Partnership (TPP), threatened to rip up the North American Free Trade Agreement (NAFTA) and doesn't seem likely to negotiate with Europe,” says John Wonfor, partner and Global Head of Tax for BDO.

“Canada has taken a different approach. We are a signatory of TPP. We have a free trade agreement with Europe. We want to enhance NAFTA, not tear it up. It's a global world and the flow of trade is changing. The growth of the middle class in China and India represent huge opportunities for Canadian businesses. At the same time, Asian companies are investing in Western countries. Canada has a real opportunity to build ties where the U.S. is building walls.”

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Canada's political stability, strong finance, education and healthcare systems have long made it a good place to do business. More and more, it's seen as a good alternative to the U.S. for multinational investment. This budget is essentially maintaining the status quo, positioning Canada as a good alternative to the U.S. for multinationals looking to invest in North America.

“The business tax environment in Canada is competitive today compared to the U.S. Our corporate tax rate is lower than that of the U.S. and middle of the pack globally. The budget maintained this rate. That's a good thing, for now,” says Gillespie. “The rest of the world is driving down corporate tax rates. Canada has to take a look at our corporate tax system and make sure it remains competitive. The government has to be very careful to make sure it continues to be competitive going forward.”

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The budget's announcement of an Innovation and Skills Plan focused on identifying and developing the skills Canadian businesses need and its announcement of an express entry system to fast-track highly skilled foreign workers into Canada is one way the government is trying to keep Canada competitive and attractive to foreign investment. “It's a big contrast with what's happening south of the border,” says Wonfor.

“One of the most significant issues facing businesses today is attracting and retaining skilled talent,” says Gillespie. “As advanced manufacturing becomes more important to the overall landscape, the government's focus on innovation and skills development is critical.”

While the budget is perhaps less dramatic than expected, that's probably a good thing in this shifting global environment. “The government did not want to overplay its hand,” says Wonfor. “That caution may help Canada become even more attractive for foreign investment.”

Looking for additional budget insights?

Watch BDO's webinar Budget 2017: Business as usual? for additional areas of impact resulting from the federal budget.

Questions? Contact your local BDO office

The information in this publication is current as of March 27, 2017.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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