Is Canada tax competitive?

By Jack Mintz University of Calgary

That question was tackled today by Jack Mintz, director of The School of Public Policy at the University of Calgary, in a long-awaited 80 country tax competitiveness comparison.  Using effective tax rate on new investment (the marginal effective tax rate), Mintz was able to determine the attractiveness of each country to investment and job creation -- a critical measure in a global economy.

The report found that Canada has made significant improvement and is well placed amongst its main competitors.  Of interest, Canada will be more tax competitive than its largest trading partner, the United States, by 2013 once federal and provincial corporate tax reductions take place and Ontario and British Columbia harmonize their sales tax with the federal GST. 

By 2013, Canada will also be more tax competitive against G-7 countries but still less tax competitive against many other OECD or emerging countries.

"Canada has made outstanding progress.  In the first decade of this century, the substantial reductions of the marginal effective tax rate on capital will improve conditions for the expansion of private sector investment for years to come," Mintz said.

In 2005 Canada was the fourth highest-taxed country of this 80 country group ­­-- a level of taxation virtually guaranteed to depress investment and job creation.  Canada improved dramatically in 2007 by reducing the marginal effective rate to make us the 13th highest-taxed country.  But, some ground has been lost since. As of 2009 we are the 10th highest taxed.

"There is a risk is that politics could get in the way of good policy," Mintz said.  "Some federal political parties are calling for the elimination of the planned reductions in 2013. Going back on the plan for reducing corporate tax rates is very simply, bad policy".  Mintz estimates that the three point reduction in the federal corporate income tax rate would lead to $49 billion in greater capital investment and 233,000 jobs over time.

A copy of the paper "Canada's Tax Competitiveness after a Decade of Reforms: Still An Unfinished Plan" by Duanjie Chen and Jack Mintz is available at www.policyschool.ca, then click on "publications."