Bloomberg News

Business-Friendly Canada Overtakes U.S. in Bloomberg Ranking

January 21, 2014

Canada, struggling to emerge from a two-year slump brought on by weak exports, has swept past the U.S., Germany and Japan in a Bloomberg ranking of the best countries for doing business.

Canada rose four places to reach second place, behind only Hong Kong, which led for a third straight year. The U.S. fell one spot to third place in the index that’s based on six criteria, followed by Singapore and Australia.

The rise in the ranking for Canada reflects recent corporate tax cuts and the impact of a weakening dollar that policy makers are projecting will help the world’s 11th-largest economy rebound from weaker-than-expected exports. A falling dollar lowers input costs relative to competitors, while the tax cuts helped make investments more profitable.

“Those are two big factors,” said John Manley, a former Canadian finance minister who is now head of the Ottawa-based Canadian Council of Chief Executives. “Compared with a lot of the world, we have a pretty good story to tell.”

After rising for much of the previous decade, Canada’s currency has depreciated since 2011, amid weakening commodity prices and as investors regained confidence in the U.S. economy. The drop has accelerated since October, when the Bank of Canada dropped its bias for higher interest rates, a move that Prime Minister Stephen Harper endorsed. The dollar is down 14 percent from its post-recession high on July 21, 2011 and has dropped 6.2 percent since the bank’s Oct. 22 announcement.

Harper has also sought to bolster the expansion with tax cuts, trade deals such as the recently announced pact with the European Union and efforts to build energy infrastructure.

Tax Cuts

Harper, in power since 2006, gradually cut the rate to 15 percent from above 22 percent, a move opposition lawmakers have said is unaffordable when the government is running deficits.

Thomas Mulcair, leader of the main opposition New Democratic Party, said in a March interview he would increase corporate tax rates to fund social programs if he took power, claiming the cuts have benefited primarily the country’s largest companies.

Royal Bank of Canada, Suncor Energy Inc. (SU), Bank of Nova Scotia, Toronto-Dominion Bank and Bank of Montreal are the country’s five largest corporate payers of income taxes, according to data compiled by Bloomberg.

Lower corporate taxes helped fuel federal shortfalls that are poised to top C$160 billion ($146 billion) between 2008 and 2015, according to finance department projections released in November.

Manley said its important not to become complacent, and is urging the federal government to pay “close attention” to training and skills issues, infrastructure development and make sure trade agreements get implemented.

“Competitiveness is one of those things that you could never say you’ve achieved it,” Manley said. “Holding on to No. 2 is not going to be easy.”

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net


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