US tax reform poses a big threat to Canada's chem and other sectors - study

Source: ICIS News

2018/09/14

TORONTO (ICIS)--The US tax reform is a huge threat to Canada, putting hundreds of thousands of jobs at risk, with petrochemicals and chemicals being particularly vulnerable, according to a study made available on Friday.

The study was commissioned by trade group Business Council of Canada which had asked consultants PricewaterhouseCoopers (PwC) to estimate the impact of the US tax reform on Canada.

“In total, we assess that approximately Canadian dollar (C$) 85bn ($65bn) in GDP, or 4.9% of Canada’s GDP; 635,000 employees, or 3.4% of Canadian employment; C$47bn in labour income; and C$20bn in government revenue are at risk as a result of the US tax reform,” the consultants concluded.

With the US tax reform, capital-intensive sectors will shift investment from Canada to the US over the next 10 year, PwC said.

The US tax reform comes at the heels of a decade where Canadian capital-intensive sectors were already generally lagging their US counterparts in both GDP growth and investment growth, the consultants said.

While over the last decade the Canadian corporate tax rate was substantially lower than that in the US, growth in capital expenditures in Canada was still significantly slower than in the US.

The US tax reform removes a key Canadian advantage, namely the lower corporate tax rate, thereby exacerbating the trend of lower investment growth in Canada and threatening the viability of certain parts of Canada’s capital-intensive sectors, PwC said.

Petrochemicals, chemicals to be hit hard

Between 2011 and 2016, chemical investment in the US increased by 51% while investment in Canada increased 6%, suggesting that even prior to US tax reform, Canada was already perceived by investors to be less competitive in chemicals, the consultants said.

With Canada losing its advantage in the corporate tax rate after the US reform, it will lose further in attractiveness in chemicals, the consultants suggested.

“All else being equal, the US tax reform poses a substantial risk to the long-term viability of a large portion of Canada’s petrochemical industry and other chemical industry,” they said.

Canada’s chem trade group keeps urging government action

Trade group Chemistry Industry Association of Canada (CIAC) has for some time identified the US tax reform as a big threat, and it has repeatedly urged Canada’s federal government to take action in facing the challenge.

As such, the PwC findings were not a surprise to the group.

“We agree, US tax changes pose a grave threat to the chemical industry," said he group's CEO, Bob Masterson, in commenting on the PwC study.

Canada’s federal and provincial finance ministers need “to coordinate a clear and direct response” to the US tax reform, he urged.

($1 = C$1.30)