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OTTAWA (Reuters) - As Canada's political parties gear up for a possible snap election, a prominent think tank urged federal and provincial governments on Wednesday to use their budget surpluses to continue cutting business taxes.
The Conference Board of Canada proposed six measures for business tax reform, including the complete elimination of capital taxes on investment and cutting corporate taxes to one of the lowest rates in the Group of Seven industrialized countries.
"Extensive Conference Board research demonstrates that Canada is slowly being pushed to the back of the developed class of nations," the organization said in a briefing paper by Glen Hodgson, senior vice-president and chief economist.
Canada is lagging in productivity growth and its companies are stunted by a strong currency, hindering investment and putting them at a disadvantage abroad, it said.
The Conference Board also endorsed a proposal put forth by the opposition Liberal Party to impose a "green tax" on carbon dioxide emissions, saying the revenue could finance the cuts.
Liberal leader Stephane Dion, who could face Conservative Prime Minister Stephen Harper in the polls as early as October 14, has said his carbon tax would be revenue neutral and would be accompanied by income tax cuts that focus on low-income individuals.
The Conservatives have attacked the Liberal proposal as "foolish," saying it will hike fuel costs further for consumers at a time of soaring oil prices.
The Conference Board praised the Conservatives for scrapping the corporate capital tax as of 2007 but said the provinces need to do more so that all jurisdictions and all sectors are free of the tax, which it says is inefficient and inequitable. So far Ontario, Quebec and Manitoba have agreed to eliminate capital taxes for manufacturers only.
The federal government should also speed up its four-year plan to cut the corporate tax rate to 15 percent in 2012 from 22.12 percent in 2007, it said. The cuts need to be accompanied by a broader package, that could include the carbon tax and incentives to invest in environmental technology.
To help companies compete internationally, the board urged Ottawa to reverse a controversial policy denying an interest payment tax reduction for companies carrying out foreign investment when that deductibility is available in two countries.
Ottawa's special help to manufacturers in the form of a two-year writeoff of certain investments should not be extended beyond the three-year period already announced, it said, to reinforce the principle that government aid is only in response to very specific shocks.
Finally, the government could do more to encourage small business growth by adjusting tax rates and credits, it said.
Reporting by Louise Egan; editing by Rob Wilson