TORONTO, Dec. 5, 2012 /CNW/ - The Ontario government underestimates its
tax burden on new business investment because it measures that burden
without taking provincial business property taxes into account,
according to a report released today by the C.D. Howe Institute. In
"Hiding in Plain Sight: The Harmful Impact of Provincial Business
Property Taxes," Adam Found and Peter Tomlinson recommend that Ontario
start including these taxes when it estimates its marginal effective
tax rates (METRs) on capital.
The province of Ontario collected $3.8 billion in provincial business
property taxes in 2010. This tax on business investment makes Ontario a
less attractive place for job-creating investment than the province's
current METR measures imply.
"Excluding business property taxes means the province doesn't get a true
picture of its relative attractiveness for new business investment -
and doesn't adequately recognize the economic benefit of reducing those
taxes," said Peter Tomlinson, a sessional lecturer in economics at the
University of Toronto.
Provincial governments in Ontario, Alberta and British Columbia, note
the authors, now hold the taxing power once held by school boards. This
power shift has transformed a local education tax into a business
property tax resembling the capital tax Ontario repealed in 2010. When
school boards controlled the business education tax, it combined - at
least potentially - two separate taxes: a benefit tax financing local
schools and a tax on capital investment. Provincial takeovers have
since eliminated any benefit tax component. From the standpoint of
investors, business education taxes - despite their obsolete name - are
now simply provincial business property taxes.
Based on their own METR estimates, the authors find that including
provincial business property taxes adds substantially to METR estimates
in Ontario. The impact of the tax on British Columbia's METR appears to
be somewhat less than the impact in Ontario, while the impact on
Alberta's METR is substantially less.
The substantial impact of the business education tax on Ontario's METR,
say the authors, lends strong support to the case for parity between
business and residential education tax rates. They estimate that if the
tax rate was reduced to parity with the residential education tax rate,
its METR impact would be almost eliminated. Even an announcement that
business/residential parity would be attained in 15 years would
immediately reduce the METR impact of business property taxes, owing to
the announcement's impact on investor expectations.
Co-author Adam Found, a PhD candidate at the University of Toronto,
observed that "as much as possible, METR estimates need to include all
taxes on capital investment. While Ontario has substantially improved
its investment climate by targeting reform to taxes included in METR
estimates, these estimates have so far excluded the BET. Once
Ontario's fiscal circumstances permit tax reductions to resume, I hope
the BET is included in published METR estimates. If it is, property tax
reductions will get their rightful share of attention."
For the report go to: http://www.cdhowe.org/hiding-in-plain-sight-the-harmful-impact-of-provincial-business-property-taxes/19828
SOURCE: C.D. Howe Institute
For further information:
Peter Tomlinson email@example.com; or Adam Found, firstname.lastname@example.org; or Benjamin Dachis, Senior Policy Analyst, C.D. Howe Institute, 416-865-1904, email:email@example.com.