TORONTO, Nov. 22, 2018 /CNW/ - Canada's 2018 Fall Economic Statement takes steps to boost Canadian competitiveness, though the Statement's changes to business taxation rules contribute to larger deficits than projected in Budget 2018, as Scotiabank Economist Marc Desormeaux explains in the latest Fiscal Pulse report published yesterday by Scotiabank Economics.

The report analyzes the new policy measures introduced in the Federal Government's annual Fall Economic Statement and their implications for Canada's broader economic and fiscal outlook. Overall, Desormeaux notes that the move toward more favourable expensing rules for capital outlays should restore Canada's longstanding advantage on the taxation of new business investment—a competitive edge that was eroded earlier this year by policy reforms in the US. However, the Federal Government's new measures are costly: they are expected to add nearly $5 billion to the deficit in fiscal year 2020 (FY20) alone and offset much of an expected windfall in income tax receipts.

"The Fall Statement is clearly focused on raising Canadian competitiveness, though the new measures plus spending increases in a number of other areas result in a wider deficit relative to Budget 2018 through the fiscal planning horizon. Spending is projected to outpace stronger-than-expected revenue growth," wrote Marc Desormeaux, Scotiabank Economist. "While we fully support the Government's efforts to boost competitiveness, we would have preferred to see more caution in raising spending at this stage in the economic cycle."

Highlights:

• For eligible investments in clean-energy equipment and outlays on machinery and equipment used for the manufacturing and processing of goods, full expensing will apply to eligible assets acquired after November 20, 2018.
• The new Accelerated Investment Incentive for tangible and intangible capital assets triples the existing first year deduction rate for eligible capital investments, and is estimated to lower Canada's overall marginal effective tax rate (METR) on new investment from 17% to just 13.8%, compared with 18.7% in the US.
• These changes are expected to reduce the Government's tax revenues by nearly $5 billion in FY20 alone, with another $9 billion in foregone revenues forecast for FY21–24. This contributes to wider federal deficit projections versus Budget 2018 during FY20–23.

Scotiabank Economics provides in-depth commentary on economic, financial market, and policy developments, both domestically and internationally.

Read the full Fiscal Pulse report on the 2018 Federal Fall Economic Statement online here.

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SOURCE Scotiabank