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Report calls for changes in tax system to help firms grow and export

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TORONTO - Ottawa should adjust its corporate tax regime that currently favours small business in an effort to encourage all companies to grow the country's exports, according to the latest Deloitte research paper on productivity.

The paper, which builds on three previous reports, examines Canada's poor export record in recent years and offers several remedies, including that company executives become more adventurous in their sales goals.

Authored by Deloitte executives Jonathan Goodman and Bill Currie, the report calls on Ottawa to adjust its tax system so as not to penalize firms that cross the threshold from small to medium to large companies. The federal rate on firms with under $500,000 in revenues is 11 per cent, as opposed to 15 per cent for amounts above the threshold.

As well, the report notes that Scientific Research and Experimental Design credits are significantly higher for small companies than large ones.

"Today, what the government rewards is small (business), and where the real value creation is in growth companies and exporters, which are generally the same companies," said Currie. "So we believe there should be consideration given in the tax system to rewarding growth companies."

One remedy would be to provide a buffer that allows firms to grow about 10 per cent beyond the small business threshold before the higher tax rate kicks in.

Meanwhile the report, based on interviews with 46 company executives, does not spare risk-adverse executives.

There is a natural tendency among medium-sized firms to play it safe by keeping activities close to home, but that strategy is self-defeating, said Goodman.

"The data is incontrovertible — global failure rates are lower for firms that export, not higher," he said. "It's more comfortable to stay at home with what you know, but in actual fact it's more risky for your company."

The report also recommends that Ottawa actively promote tourism by relaxing visa rules to ensure travel into Canada is affordable and hassle free.

A previous report by the consulting firm concluded that a one per cent increase in international arrivals would generate $817 million in increased exports the following two years.

The authors as well call on the government to finalize trade agreements with Europe, the Trans-Pacific Partnership, Japan and India.

Exports have been the Achilles heel of the Canadian economy since the recession. Almost five years into the recovery, exports have yet to return to pre-slump levels.

The Bank of Canada has suggested one reason is that there are about 9,000 fewer exporting companies in Canada than existed prior to the 2008-09 crisis, and many that remain have downsized. Still, bank governor Stephen Poloz said last month he was hopeful the recent reduction in the value of the loonie and a pickup in the U.S. economy should improve export performance going forward.

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