TORONTO, July 30 /CNW/ - Canadian governments are undercutting progress
in tax reform with counter-productive policies that impose unequal tax burdens
across assets and industries, according to a study released today by the C.D.
Howe Institute. In Limited Horizons: The 2008 Report on Federal and Provincial
Budgetary Tax Policies, leading tax scholars Duanjie Chen and Jack M. Mintz
track progress by the federal and provincial governments in reducing the
marginal effective tax rate (METR) on business investment, a key measure of
tax competitiveness in the global economy.
They find, overall, Canada's 2008 marginal effective tax rate on capital
investment has fallen from 31.9 percent in 2007 to 29.1 percent in 2008. With
further business tax reductions at the federal and provincial levels, the rate
will fall to 25.8 percent by 2012. That is good news indeed, they say, since
such changes will increase capital stock by $62 billion within five years time
and improve worker annual incomes by $2.9 billion. However, some provinces
continue to levy high METRs. Ontario and Manitoba impose the highest METRs in
2008: 34.8 and 33.8 percent, respectively.
Most troublingly, the authors find that in many provinces the variation
of tax burdens on business activities is increasing sharply, thereby
interfering with boardroom decisions on steering resources to the most
profitable opportunities. Priorities for improvement include: (i) a reduction
in provincial corporate income tax rates to 10 percent, which would bring
Canada's overall statutory corporate income tax rate to 25 percent in 2012, in
line with international trends; (ii) the removal of targeted preferences for
specific industries; (iii) sales tax harmonization with the federal GST by the
hold-out provinces (British Columbia, Manitoba, Ontario, Prince Edward Island
and Saskatchewan); and (iv) further reductions in personal income taxes to
relieve the tax burden on labour income. Canada needs tax policies that both
reduce the tax burden on investments and create a level-playing field to
promote economic growth, they conclude.
For the study, go to http://www.cdhowe.org/pdf/commentary_270.pdf.
For further information:
For further information: Jack M. Mintz, Fellow-in-Residence, C.D. Howe
Institute, Palmer Chair in Public Policy, University of Calgary, (403)
220-7661; Duanjie Chen, George Weston Analyst in Tax Policy, C.D. Howe
Institute, (416) 865-1904, email@example.com