Many Canadians dislike Donald Trump; however, a new study shows the impacts of US tax reform on Canada’s economy may have severe ramifications.
The Business Council of Canada asked PricewaterhouseCoopers, PWC, to estimate the impact of the United States Tax Cuts and Jobs Act on the Canadian economy, and the results are disturbing.
For one, its analysis suggests that US tax reform has eliminated one of Canada’s main competitive advantages.
“In total, we assess that approximately $85 billion CAD in GDP (or 4.9% of Canada’s GDP), 635,000 employees (or 3.4% of Canadian employment), $47 billion CAD in labour income, and $20 billion CAD in government revenue are at risk as a result of the US tax reform,” reads the report.
Even worse, the numbers exclude the loss of opportunity to establish new industries or expand existing industries as a result of the digital revolution.
Donald Trump Tax Reform
Canadian officials were already concerned about NAFTA, but that trade agreement would not even have the same effects as the US tax reform. The Conference Board of Canada predicts a 0.5% decline in Canada’s GDP, and the loss of about 85,000 jobs, if the North American Free Trade Agreement is terminated. Compared to 635,000 jobs from tax reform, this figure is far lower.
In addition, the reports suggests the reform could result in a “brain drain” of highly skilled Canadian employees to the United States. Lower personal income tax rates introduced by the US tax reform are expected increase the net income gap between the US and Canada, especially in highly skilled occupations.
A such, the US tax reform therefore marginally increases incentives for highly skilled Canadian workers to relocate to the US. Furthermore, it makes it more difficult for Canada to attract highly skilled foreign workers.
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