Cost competitiveness: Game face

Canada still has some trump cards.

It’s official. The soaring loonie has pretty much wiped out any cost advantage Canada used to have against the United States. Canadian companies now spend an average of just 0.6% less than their American counterparts, according to a new KPMG report.

The seventh Competitive Alternatives study analyzed 27 business cost components, such as labour (which also includes health care and fringe benefits), facilities, transportation and utilities, across 17 industry operations in 10 countries. The results prove what most have long suspected: Canada has been coasting for years on a cheap loonie to help attract new business away from the U.S.

Yet Canada still has several trump cards, particularly in some of the non-cost factors, which KPMG analyzed for the first time. For instance, in education, the country is one of the best when combining attainment, cost and outcome. Canada is also considered to be relatively lacking in red tapeand corruption, and is one of just three countries that are self-sufficient in energy — Australia and Mexico are the others.

Perhaps the biggest surprise is that effective corporate tax rates in Canada have declined to the point where they give a distinct advantage over the U.S. “The total burden of taxes is relatively small compared to something like labour, but that is a message that is a particularly powerful one,” says Mark MacDonald, global director of Competitive Alternatives for KPMG.

The federal corporate tax rate will soon be 15%, about half what it was in the mid-1990s, and almost all provinces have cut taxes and eliminated capital taxes, says Glenn Mair of MMK Consulting, co-author of the report. “There’s been quite a fundamental shift over that time in terms of corporate tax-structuring in Canada,” says Mair.

Canadian cities also still do fairly well on a regionalized head-to-head basis. For example, Montreal is the most cost-competitive large city in Canada and the northeastern United States, but it’s still more expensive than Atlanta or Tampa, Fla. Even Vancouver, the priciest Canadian city, is slightly cheaper than neighbouring Seattle, proving location still matters sometimes. Andy Holloway