I just finished listening to Bruce Cockburn’s newest album (or is it digital music release?). I know that he has gotten quite niche in his old age (translation he doesn’t sell as much as the Lovers in a Dangerous Time days) but I still have an emotional attachment to his music. When I was an 18 year old university student in the early part of a six year stint in Yankeeland, I walked into a music store and bought his World of Wonders and I have since bought all of his music and seen him in concert seven times including last year in Oregon. He has a song entitled “You can call me Rose” about a reincarnated Richard Nixon who comes back as a welfare mom named Rose. Fun stuff.
Back to business. Just got around to reading the new APEC study about foreign investment prospects for Atlantic Canada. Unfortunately, this is not a free report so I can’t post it but the press release is here. I will, however; take the liberty of agreeing with many of their findings and recommendations.
Encouraging foreign investment does not mean that the governments should ignore domestic firms – there is scope and a need for both.
While this should be self-evident, APEC shouldn’t worry about this. I estimate that well over 90% of the effort in New Brunswick is focused on local firms – mostly SMEs. I base this on my knowledge of the workings of the Enterprise agencies, CBDCs, ACOA and BNB. The big files are high profile and tend to get media coverage but the overwhelming effort is on the local SMEs.
Governments and investment agencies need to shift their focus from attraction efforts that emphasize a business case based largely on low costs to attraction and retention strategies that emphasize innovation and unique sources of regional competitive advantage within the global economy. This will likely mean emphasizing fewer job opportunities but jobs that are higher skill and higher paid.
I think this is mostly true and mostly a good thing. I think some people are underestimating the potential for manufacturing to make a come back and for a place like New Brunswick to carve out a niche. But the underlying premise of not building the case for Atlantic Canada solely on low costs is a good one.
Foreign firms identified a reduction in corporate income taxes as a high priority to help improve the region’s business climate. An up-to-date review of empirical studies concludes that foreign direct investment decisions are sensitive to both marginal and average corporate tax rates. Both the statutory rate and the METR matter.
You know my view on this and APEC did survey firms so they were hearing this but the truth is that with some exceptions any FDI in Atlantic Canada will pay very little corporate income tax because their head office and markets are not here (I have detailed this elsewhere). There are some very tax/royalty sensitive investments like minerals and oil/gas but for the rest, the corporate tax burden is light here. How do we rectify the fact that KPMG in its recent tax analysis found New Brunswick had the lowest total tax burden with this study which finds it ‘stifling’?
I think there is a little local business bias creeping into the analysis. A local firm, with all local markets in PEI or Nova Scotia will obviously pay the full provincial corporate income tax rate on their taxable income. The big multinationals will not.