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Cablegate: Federal Government Promotes Canada As a Low Tax Country

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FM AMCONSUL TORONTO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2243
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UNCLAS TORONTO 000441

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SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV PINR PREL SENV CA
SUBJECT: Federal Government Promotes Canada as a Low Tax Country
Open for Investment


1. Summary: Federal Finance Minister Jim Flaherty made no new
announcements in a November 5 Toronto speech, instead apparently
previewing Conservative economic themes for the next campaign by
focusing mostly on Canada's strong economy and Conservative
tax-cutting, including the next promised one cent cut in the Goods
and Services Tax (GST). Flaherty said that Canada's role at the G20
talks later this month will give him the opportunity to "brand
Canada as a low-tax country open for investment." End Summary.

2. In a warmly-received November 5 luncheon speech to the Greater
Toronto Marketing Association (GTMA), federal Finance Minister Jim
Flaherty listed the Conservative Government's economic
accomplishments to a sympathetic audience in a likely preview of
speeches to come in the next election campaign. He emphasized
Canada's strong economy and the current government's effort to
"leave a legacy of tax cutting," saying "I never met a tax cut I
didn't like." Flaherty added that in 21 months in office, the
Conservatives have put in place tax cuts that cumulatively will
amount to C$190 billion and will bring back the lowest tax levels in
Canada since the days of Prime Ministers Diefenbaker and Pearson
(1957-68). Canada is on the best fiscal footing of any G7 country,
with surpluses, falling debt, and a soundly financed public pension
system, Flaherty said.

3. Flaherty first highlighted the government's promise to reduce the
business tax from 22% to 15% by 2012, and then offered a defense of
the GST cut, which the opposition and some economists have
criticized as encouraging consumption rather than investment.
Cutting the GST will benefit the one third of Canadians who do not
pay income tax, he said three times, and the 2 cent GST cut will
mean an additional C$940 million for the people of the City of
Toronto. The economists are welcome to continue paying it if they
wish.

4. Flaherty also offered a list of the funding transfers the
Conservatives have made to Toronto and Ontario to fund projects and
programs including infrastructure, water, public transit, the
harbor, cultural institutions, labor training, universal child care,
and others. He emphasized the Conservatives' shift to per capita
transfers, which he said the Government agrees with Ontario Premier
McGuinty are a fairer system, and which Flaherty said would result
in C$12.8 billion being transferred to Ontarians.

5. Flaherty also responded to a few questions on topics of interest
to the United States:

-- Canada should reduce inter-provincial trade barriers, which are
higher than trade barriers among EU countries;

-- Moving to a national securities regulator is the way to go, but
will take time. The current system means Canadians are not able to
access some financial products, and a system of 13 regulators in one
country is an embarrassment.

-- The income trust decision was a "very difficult decision," but
was necessary to ensure a "level playing field," and to ensure that
business decisions are made on a sound basis, and not just for tax
reasons.

-- Canada will need to find a way to limit carbon emissions, and a
cap and trade system which relies on market mechanisms is a likely
option to be considered.

-- The Conservatives were able to negotiate a signed tax agreement
with the United States within 20 months after entering office, after
the previous government had promised for 10 years to do it, but
never did so.

NAY

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