It remains to be seen how much life there is in the Occupy Wall Street movement and, more importantly, how deeply it will resonate with the mainstream population. Debt is at punishing levels, the disparity between rich and poor is growing and corporate profits are high. Politicians are under pressure from their electorate and, in western countries, some policy makers are starting to seriously contemplate increasing both taxes on the rich and corporate tax rates.
Canada needs to resist this temptation.  While China continues to grow, resource-rich countries like Canada and Australia have mitigated the worst of the west’s economic problems. There is a remarkable opportunity for us to capitalize on the weaknesses of our western trading partners…particularly the US.   If we keep our head about us and don’t follow the trend of higher taxes we will gain a competitive advantage in attracting new investment.  Money has no conscience.  It will seek out countries where it will have the highest rates of return with the least risk. We want that country to be Canada.
US businesses have done a good job of cleaning up their balance sheets, conserving cash, divesting losing operations and generally running more efficient enterprises.  In many instances, they have even reversed their globalization strategies by selling off foreign operations and focusing on the domestic market.  Unfortunately, the US government has not been as focused and is suffering from political gridlock. Canadian economist Brian Lee Crowley has predicted 10 years of slow US growth characterized by higher US taxes, deep cuts in social welfare and many years of political wrangling.
While the US might flounder for the next 10 years, Canada has a window of opportunity to build a more diversified economy that is less dependent on resources and the financial services sector which, together, comprise 70% of the TSX.  It would be almost criminal if we succumbed to global trends to boost taxes at precisely the time when we are standing out from the pack as a low-cost market in which to conduct global business.
To date Jim Flaherty has said the ‘occupy movement is more relevant to the US than Canada’.  This may be true, but, in this February’s budget he needs to start making the link between low taxes and economic growth or we may find we get caught up in the growing call for higher taxes as well.

Authored by: Mike Coates