Economists and executives urge sweeping tax reform to boost Canadian investment

Eleven prominent Canadian economists and business executives are urging the federal government to pursue sweeping tax reforms, arguing the current system is too complex and discourages investment.

Their proposals, compiled by The Globe and Mail, include making a new capital investment incentive universal, adding expiry dates to tax breaks and creating new incentives for investing in Canadian public companies.

Darryl White, chief executive officer of BMO Financial Group, said the government's recent "productivity mega deduction" is a good start but should be a launch pad for a broader review.

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"It's time for a moonshot review with a simple goal: make Canada the easiest place in the world to start, grow and invest in a business," White said. "That means putting everything on the table, from what we tax to how the system is administered."

He said Canada's last comprehensive tax review occurred before Neil Armstrong walked on the moon, and since then layers of credits and complexity have accumulated.

Trevor Tombe, an economics professor at the University of Calgary, said the government should build on the new deduction by making it apply to all capital investments without exception.

The productivity mega deduction, announced by Prime Minister Mark Carney, allows companies to immediately expense the costs of about two-thirds of capital assets, up from 15 per cent previously. The incentives are permanent.

"The fix is simple: Let firms write off 100 per cent of capital spending, right away, permanently, across the board," Tombe said. "That's much like a zero tax rate on new investment returns."

He called the government's move "the most significant pro-investment federal tax change in decades" but said one step remains to make it universal.

Another proposal calls for all new tax breaks to come with a legislated expiry date, requiring the government to prove they still serve a public purpose before renewal.

"Every new tax break should come with a legislated expiry date," the proposal states. "Before it can be renewed, government should publish evidence that it still serves a public purpose and delivers value for money."

This scrutiny is needed because Ottawa forgoes about $150 billion a year through tax incentives, which function like spending programs, and many remain largely untested, according to the notes. The Auditor-General warned a decade ago that Canada lacks a systematic process to evaluate them.

John Ruffolo, founder of Maverix Private Equity, proposed a series of targeted measures to encourage investment in Canadian companies.

He suggested a preferential inclusion rate for capital gains on investments in public companies that are domiciled and headquartered in Canada, subject to a minimum holding period.

Ruffolo also proposed a reduced corporate tax rate for a five-year period following a corporation's go-public event, applying to qualifying Canadian public companies with a market capitalization below $1.5 billion.

Canada's Income Tax Act has grown to 3,827 pages from a pamphlet-sized document a century ago, creating complexity for households and businesses.

The country leans heavily on personal taxation compared with other rich nations, which can be a headwind for attracting talent and capital, while business investment has been weak for decades.

The Canadian Federation of Independent Business estimated businesses spent 768 million hours on regulatory compliance in 2024, which it equates to 394,000 full-time jobs.

The Bank of Canada has said the country faces a productivity emergency.

With files from The Globe and Mail