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Canada’s corporate tax rate remains at 15% and that low tax rate was one of the reasons the country essentially cruised unharmed through the financial crash of 2008 and its bloody aftermath.
Throughout the global financial meltdown Canada easily led all G7 countries in growth (although Canadian growth was curtailed as compared to pre-crash projections) and the country didn’t need to increase taxes, nor make major fiscal or monetary adjustments during that period.
Although the country isn’t thought of as an offshore tax haven by any stretch, having a 14.5% corporate tax rate during the global economic crisis (it’s since risen to 15%) meant the country avoided the exodus of capital that other nations experienced.
That reasonable corporate tax rate as much as any other factor helped Canada to survive and thrive in the face of one of the most damaging economic meltdowns in modern history.
Money fleeing the country to low corporate taxation destinations is NOT what the UK government needs any time over the next decade.
Will There be Another Recession?
Of course there will be another recession. Recessions in Western countries occur every 25-years on average although unexpected economic shocks have been known to occur. Just because the average interregnum is 25-years, doesn’t mean recessions can’t also happen randomly — which means that the UK needs to begin playing it smart, now, to better survive the next global downturn.
Why Match Canada’s Rate?
Canada’s corporate tax rate just happens to fall within an economic ‘sweet spot’ — high enough that it doesn’t get named and shamed as an offshore tax haven (which tend to get a lot of bad press when a recession is on) yet is close enough to other developed nation corporate tax rates that it doesn’t get a bad reputation.
All else being equal, you want to go with what works. And Canada’s low corporate taxation plan worked wonders to help the country coast through the last recession — and it performed even better than expected, pre- and post-recession.
Sure, there were nervous moments here and there, nobody denies that. But that 15% rate combined with a steady hand on the economic tiller by Mr. Mark Carney then-governor of the Bank of Canada (now governor of the Bank of England) and the country under the steady leadership of (then-Prime Minister) Stephen Harper added gravitas and confidence to the Canadian economy at a time it was needed.
That’s all it takes to survive and thrive in recessionary times, folks.
Philip Hammond’s Next Budget
UK Chancellor of the Exchequer Philip Hammond should match Canada’s corporate income tax rates exactly, and publicly commit to that at Spring Budget 2019. Or even better, in Autumn Budget 2018.
Due to Brexit there is a real need to write both a spring and autumn budget each year, at least until the 2-year implementation period is complete.
Lowering corporate taxes could mean less revenue for HM government. That’s a possibility. But there are positives to a lower corporate income tax rate for the UK, particularly during the present economic uncertainty:
- More companies will move their headquarters to the UK to obtain a better corporate tax rate.
- More UK companies will decide to stay in the UK rather than leave it for (perceived) greener pastures during this period of economic uncertainty, although they could well have plans to return 5-years on from Brexit. (But can you count on that?)
- UK-based companies will have more money to invest in their UK operations, to increase non-labour purchases, and perhaps expand their existing factories, facilities, or number of retail outlets.
- UK companies that presently fear Brexit may hurt their business may find that as the UK corporate income tax rate falls to 15% it gives them a competitive advantage of 5% they didn’t have prior to this (proposal). Less fear and better after-tax profits. ‘Gotta like that’ said every CEO ever.
- Instead of the government needing to stimulate the economy, increased spending by UK companies flush with newfound cash will help to stabilize the economy now and through the 2-year implementation period via increased spending and hiring.
- Hiring more workers with a 5% tax savings means more revenue for HM government — as many of those workers will earn enough to pay an average 45%-55% personal income tax rate.
That’s just a short list of the benefits of lowering the corporate income tax rate to 15% and if the tax reduction announcement is timed correctly HM Revenue and Customs shouldn’t suffer any loss of revenue — and it’s possible that HMRC may receive slightly more revenue courtesy of additional personal income tax contributions if companies go on a hiring spree with their saved money.
Here’s a bonus graphic to show *what can happen* when you cut the UK corporate income tax rate…
Until the official Brexit date of March 29, 2019 the UK remains in the European Union — which means that Britain remains a party to the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada.
And the CETA accord is a very fine agreement (as it should be, because it took 7-years to negotiate) but it may take another year or two to become fully implemented. At the moment CETA is only partially implemented, but eventually 98% of tariffs between Canada and the EU will be eliminated.
Once Brexit happens on March 29, 2019, the UK will cease to be a CETA signatory and something else (a ‘drop-in’ agreement) will need to replace it.
That is the topic of this blog post.
Enter the United States, Canada, and NAFTA.
Where’s Canada on the International Trade Map?
Canada is a surprisingly strong exporting country. With a population of only 36 million and a territory that measures 3.855 million square miles, it means the country is practically empty.
Across this huge landscape are fields of crops larger than the entire UK, but Canada’s few cities are large. In fact, the Greater Toronto Area (the GTA) is larger and has a greater population than the New York Metropolitan Area.
And it’s an exporting superstar; Making it the 11th highest exporting nation in the world.
“Canada is currently the fourth largest exporter of cars in the world and the ninth largest auto producer in the world, making 2.1 million cars a year. Trade with the U.S. is by far the most powerful driver for the automotive sector.” — Export Development Canada
What if There’s No New NAFTA Agreement?
If the NAFTA agreement falters due to insufficient efforts between U.S. and Canadian negotiators Canada will end up producing cars for itself — which means it won’t be exporting 1.8 million cars to the United States annually once NAFTA is terminated (or) once President Trump slaps a 25% tariff on Canadian cars exported to the United States.
Which means a lot of Canadian autoworkers are going to become unemployed the day after that announcement.
Which means that Canada (insert drum roll here) needs a ‘Plan B’.
President Trump Isn’t ‘Being Evil to Canada’ He’s Protecting American Interests Because That’s His Job!
You can’t blame him for that. For goodness sake he’s the President of the United States, not of Canada.
But Canada can’t sit idly by and wait for the world to end. The country must pick itself up and get on with business.
And the best way to do that is to respectfully approach the UK and inform them that it’s likely NAFTA will be terminated or changed in ways that result in Canada having an excess auto manufacturing capacity of up to 1.8 million units per year.
Such manufacturing capacity could be very useful to the UK government and to UK industry.
How Canada and the UK can Work Together for Mutual Benefit
The cost of living in the UK is much higher than it is in Canada, therefore wages in the UK are higher than in Canada.
And it’s the reason why only premium car lines are built in the UK where the high labour cost for exceptional hand-built cars are reflected in the final price and nobody minds paying extra. See; Aston Martin, Jaguar, Land Rover, etc.
Even Rolls Royce and Bentley were forced to move to continental Europe because they couldn’t afford the high labour costs of UK workers and the costly land/building/business costs of manufacturing cars in the United Kingdom.
Post-NAFTA, huge opportunities exist for Canada to export lower-priced GM, Ford, and Fiat Chrysler (FCA) cars and trucks to the UK — freeing-up huge amounts of disposable income for Britons.
Which means that saved money will be spent elsewhere in the UK — whether on home renovations, tuition, school supplies, vacations or investments — because it isn’t going anywhere (it isn’t going to magically vanish!) it will simply be spent on other items.
Any Canadian-built vehicles that are exported to the UK over what the UK market can sustain can be forwarded to Commonwealth of Nations countries by UK re-exporters.
India alone has a population of 1.32 billion and its economy is rising fast to become the third-largest consumer economy in the world. There’s no lack of demand for cars and trucks in the Commonwealth.
A Must Read: India Poised To Be Third Largest Consumer Economy (Forbes)
All of which works to help the UK economy.
Trump Wins, Trudeau Wins and May Wins!
President Trump wins because he will have prevented Canada from exporting 1.8 million vehicles to the United States annually, and American factories (meaning American workers) will need to fill that demand gap, Prime Minister Trudeau wins because he will have saved the Canadian jobs associated with the manufacturing of those 1.8 million cars and trucks, and Prime Minister May wins because she will have ushered in three new lines of lower-priced vehicles for UK consumers and those savings will translate into higher levels of disposable income for British consumers that can be spent elsewhere in the UK economy.
It’s so easy when you know how...
Assuming European politicians can’t get their act together enough to craft a reasonable Brexit deal that works for both sides by March 29, 2019 Europe will be faced with Brexit on WTO terms which is known colloquially as a ‘Hard Brexit’ where the UK would leave the European Single Market and Common Market mechanisms and other EU agreements and institutions without any subsequent deal in place.
Without further ado, and without boring you with statistics, let’s look at how a Hard Brexit would play-out in the months and years following a WTO-style Brexit.
Will There Be Famine in the Land?
Of all of the dubious claims by the Project Fear campaigners (and they’ve made many!) this must rank in first place.
No. There won’t be famine in the UK on account of Hard Brexit. However, you may notice your favorite brand of cheese may be unavailable for a time and you may find your prescription medications come from UK pharmaceutical companies or American pharmas instead of from continental Europe.
Saying the following words out loud will do you good, dear Britons — so repeat after me;
“The United States of America has come to Britain’s rescue in times past and will do so again in its hour of need.”
Regarding agriculture; The United States agricultural belt is unimaginably massive and its farmers and ranchers are just waiting to fulfill the UK’s orders. There are fields of crops in the United States larger than the entire United Kingdom. It takes 3-hours to overfly them in a jet aircraft flying at 500 miles per hour.
Regarding ranching; There are 93.5 million cattle in the United States (2017) and that number continues to rise at a little better than 1% per year, and significant capacity exists to raise it over a relatively short period of time.
Similar agricultural capacity is available in Canada for grains, corn, soybean, and other crops, and Canada boasts 4.6 million cattle at present (2018) and Canada has more arable land than the United States allowing it to exceed even the mighty U.S. in this regard if sufficient firm orders were placed.
To answer the question: “Where’s the beef?” It’s in the United States and Canada… Just pick up the phone and call us! North American farmers and ranchers would love to take your money — instead of the EU taking your money.
Britons might find their food costs plummet as the huge economies of scale that typify North American food production and the favorable growing conditions combine to produce bumper-crop after bumper-crop which lead inevitably to lower food prices.
Aren’t All American Crops GMO?
Genetically Modified Organisms or GMO crops are grown on every continent, including Europe, which has about the same number of GMO crops as America.
Some Europeans fear that all crops grown in the United States are GMO crops, but except in the case of corn that isn’t true. All corn, no matter where it is grown in the world is GMO and that’s been true for a few decades now. Corn (and maize, which is a type of rough corn that is fed to cattle over the winter months) aren’t commercially viable crops unless the GMO component is added.
Some crops like ‘Yukon Gold’ potatoes, Canola (a seed grain) and every apple sold on the planet have been GMO for many decades.
To alleviate concerns about GMO foods being sold in the UK, Theresa May’s government could simply legislate that any produce or meat that *isn’t* GMO must be identified as non-GMO for UK consumers.
Explainer: Forcing producers to put GMO labels on their produce (if theirs is indeed a GMO variant) is seen as a negative by GMO food producers. But giving non-GMO farmers the right to advertise “Non-GMO produce” or “Non-GMO meat” on their labels would be seen as a positive for their non-GMO produce and meat.
See how easy it is?
Not only won’t there be famine in the land, UK consumers will enjoy a completely new supply chain from which to choose and sufficient labelling for them to make the best choices for their families.
What if the EU Decides to Punish the UK for Leaving?
If the EU wanted to drive the UK directly into America’s arms… the EU would ensure a Hard Brexit and not allow EU goods or produce to be shipped to the UK following Brexit, nor would it allow UK goods or produce to be sold into the EU following Brexit.
If that’s the EU plan, bring it on! Because that plan has a 100% chance of success should the EU choose to make it happen.
And Americans and Canadians are just waiting… “Please, oh God, please, cause the EU to drive the UK into our ever-loving arms!” said every North American farmer, rancher and manufacturer.
To say nothing about the even more fervent prayers being said by North American auto manufacturers in Detroit, U.S.A. and in Windsor, Canada.
For Britain, a WTO Brexit simply means changing suppliers — with a zero-tariff trade deal in effect with North America — combined with the opportunity to sell UK goods into the vast North American market.
The ball, as they say… is in your court, European Union!
View the video where HM North American Trade Commissioner is interviewed by Bloomberg Television on March 26, 2018.
Clicking on the image takes you direct to the relevant Bloomberg webpage.