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Big business urges Tories to think carefully before spending anticipated surplus

OTTAWA - Finance Minister Jim Flaherty shouldn't lose sight of what businesses need before making any final decisions about spending a surplus ahead of the next election, says a group representing the country's biggest corporations.

While the Canadian Council of Chief Executives supports Flaherty's drive to slay the deficit, it says in a Jan. 17 letter that there will be a lot of people with their hands out once he posts a surplus.

"If you think it's tough managing spending when you're in a deficit, just wait until you have a surplus," council president and CEO John Manley said Tuesday in an interview from Davos, Switzerland.

"Because everybody that's been able to say, 'Well, OK,' during times of restraint are going to believe that they should be at the top of the list in times of surplus. So he's going to have his work cut out for him."

It's no secret that the Conservatives want a surplus in 2015 so they can deliver on previous promises, such as partial income splitting for families, for the next election.

But Flaherty needs to make business needs a priority too, Manley said.

"You have to keep an eye on the competitiveness agenda for Canada at all times," said the former Liberal finance minister.

"We have an opportunity now with a balanced budget to try to move forward in some of the other competitiveness elements, and that's what we're trying to make sure that doesn't get lost in the run-up to an election."

Balancing the books and keeping the debt-to-GDP ratio low will allow Canada to weather the storm if there's another economic downturn, said Manley. But Flaherty must identify "long-term strategic priorities" before deciding where to spend any future surpluses.

That includes taking a "more active role" in putting together a national labour-market strategy and working with the provinces and the United States to improve infrastructure, Manley said.

The Conservatives should also consider levelling the tax field when it comes to taxing small and big businesses, and devoting more resources to lock down international trade deals with Europe, Pacific countries and China.

Ratifying the Canada-ECU free trade pact must be top priority to improve access to one of the biggest markets in the world and possibly pave the way for a NAFTA-EU deal, he said. The Tories should also focus on the Trans-Pacific Partnership as well as a strategic partnership with economic powerhouse China.

Pouring resources into trade commissioner services, enforcement agencies and Export Development Canada can help push things along, he said.

Other powerful business groups are looking for more immediate action from Flaherty on the tax front, but are lowering expectations ahead of the budget.

Canadian Manufacturers and Exporters is looking for what it calls a competitive rate of depreciation for manufacturers; that is, how much of the cost of a piece of equipment or other capital asset a business can write off each year so they pay less tax.

The current formula allows companies to write off the cost of new equipment faster — within three years instead of 12 under the old system — which encourages them to invest in new equipment to boost productivity and grow the economy, said president and CEO Jayson Myers.

But it costs Ottawa about $1.5 billion every two years and the current system is set to expire in 2015, he added.

"My overall sense is that there's going to be very little in the budget, that the big objective that they have is to balance the budget," Myers said.

"So that if we're looking at any major new tax measure or spending measure, it's probably going to be in next year's budget rather than this year's."

From one finance minister to another, Manley said he has some advice for Flaherty as he approaches his goal to post a $3.7-billion — or possibly higher — surplus in 2015-16.

"Stand in front of a mirror and practice saying no," he said. "Different tones of voice, always smile, but practice saying no."

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