The Organization for Economic Co-operation and Development (OECD) says Canada must review its tax policies to remain competitive with the United States.
In a report published Monday, the Paris-based group says U.S. tax reform has enhanced the attractiveness of investing there at the expense of investing in Canada.
It says U.S. tax cuts have also reinforced the “negative effects” of uncertainty surrounding Canada’s competitiveness as it attempts to renegotiate the North American Free Trade Agreement with Mexico and the U.S.
Ottawa has come under pressure from corporate Canada to respond to a move late last year by President Donald Trump to dramatically chop the U.S. corporate tax rate.
In April, RBC president and CEO Dave McKay said a significant investment exodus to the U.S. is underway, especially in the energy and clean-technology sectors, which could be followed by a loss of skilled workers.
The OECD says annual economic growth in Canada is expected to ease from 3% in 2017 to around 2% in 2018-19 as private consumption and government spending slow.
“The government should review the tax system to ensure that it remains efficient — raising sufficient revenues to fund public spending without imposing effective costs on the economy — equitable and supports the competitiveness of the Canadian economy,” the OECD said in its report.
It says business investment has picked up but remains weaker than before commodity prices began falling in 2014, in part because upstream oil and gas investment is being held up by pipeline capacity constraints and regulatory barriers to expansion, resulting in curtailed exports.