Morneau hints at budget clarification on passive income rules

The Liberal government will not “act in an impulsive way” in response to U.S. corporate tax cuts that economists say pose a threat to Canada’s competitiveness, the federal finance minister said after a pre-budget meeting Friday.

Bill Morneau said the government is conducting careful analysis in connection with U.S. President Donald Trump’s sweeping tax reforms, which cut the U.S. corporate tax rate from 35% to 21% as of Jan. 1.

“We are doing our analysis to make sure that we understand the impact of any changes […] To make sure we get it right and not to act in an impulsive way,” he said to reporters on Friday.

Morneau’s comments came after he met with private-sector economists in Toronto to get their input on everything from NAFTA to global economic uncertainty ahead of the federal budget on Feb. 27. The panel typically includes about a dozen experts from commercial banks, think tanks and trade associations.

The finance minister was tight-lipped Friday about the upcoming budget but said the discussion with economists touched on the uncertainty around negotiations of the North American Free Trade Agreement and the impact of changes to U.S. tax rates on the Canadian economy.

Read: Persistent ‘difficult issues’ to prolong NAFTA talks: report

“We will carefully consider the U.S. changes and the international situation to make sure that our economy is competitive,” he said.

He would not comment on whether tax cuts are in the cards for large Canadian corporations.

Economists have said the tax reforms will give companies another reason to set up shop or relocate south of the border.

Morneau also hinted Friday that clarifications to rules around passive income for small businesses would be coming, after a suite of changes announced last summer drew substantial backlash from the business community.

Read: Tax questions for business owners in 2018

No fiscal wiggle room

Reporting on the meeting on Friday, Bloomberg indicated that Morneau will have “little additional fiscal space for new measures,” based on what economists are projecting for national income.

According to the Finance Department’s latest survey of economists, says Bloomberg, growth is expected to “slow down to the historically sluggish levels the economy has averaged in the post-recession era,” despite the strength of the economy last year.

As a result, more spending could lead to higher deficits or increased tax levels, leaving Morneau to work “within the existing framework or possibly tapping into existing buffers built into the fiscal plan,” reports Bloomberg.

Read: Experts urge Morneau to proceed with caution in 2018 budget