OECD: Canada must reform taxes to up the competitiveness

Canada OECD
Last updated on September 5th, 2018

Despite strong economic growth of Canada, and the improvement in its housing market vulnerabilities, the trade policy is a big risk to the overall situation. The Organization for Economic Cooperation and Development (OECD) said, on Monday, that in order to boost corporate competitiveness of Canadian economy, the government must reform taxes.

The Paris-based OECD also said that while Gross Domestic Product (GDP) growth is expected to remain prosperous, the rising rates will undermine customer strength to a certain extent, as exports are also supported by strong global demand.

The OECD has anticipated Canada’s economy to grow by 2.1 per cent this year, while 2.2 per cent next year. The figures are likely to descend from 3.0 per cent in 2017. Besides, the employment and exports will continue to enhance, with a rise in Consumer Price Index (CPI) inflation to 2.3 per cent in 2018 and 2.2 per cent in 2019.

Seeing that ambiguity of US trade policy in the near future may lead to declining investment, the OECD said that the greatest risk in the outlook is trade protectionism.

It also stated that the termination of the North American Free Trade Agreement would have “A small but material effect” on the GDP. Besides, the potential losses in the short term are expected to be around 0.5 per cent of GPD, while 0.2 per cent in the long term.

The OECD also remarked that the corporate tax cuts of the US have impacted the competitiveness of Canada, by underpinning the negative hit from North American Free Trade Agreement (NAFTA) uncertainty.

“The government should review the tax system to ensure that it remains efficient — raising sufficient revenues to fund public spending without imposing excessive costs on the economy — equitable and supports the competitiveness of the Canadian economy,” it said.

The organization also informed that the income inequality is close to the OECD mean, while working-age poverty is fairly above the OECD average. However, the immigrant labour market integration lags, and a sizeable gender earnings gap still persists.

Nevertheless, the course of changes to mortgage rules and other macro-prudential measures, have alleviated the risks around a long housing boom, said the OECD.

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