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Canada's tax competitiveness after a decade of reforms

25 May 2010

Further tax changes in the pipeline, particularly British Columbia’s and Ontario’s sales tax harmonization, will reduce Canada’s METR to 18.9% by 2013, which would compare well with the current 19.5% average for member countries of the Organisation for Economic Co-operation and Development (OECD), and would approach the 18% average of a broader group of 80 countries that we have examined. [...] The revenue-maximizing corporate income tax rate has been recently estimated as between 25% and 27%, a decline from earlier years.1 The economic cost of giving up the three-point reduction in the federal corporate income tax rate planned by 2013 would be a long-run loss of $47 billion in capital investment and 233,000 jobs. [...] Critics complain that we first suggest Canada should aim for the METR in the United States as the target for competitiveness, then that Canada should match the METRs of the other Group-of-7 (G-7) major industrialized countries and the average of the OECD. [...] Besides, in the end, it is not companies that bear the cost of the taxes they pay but less mobile consumers, in the form of higher prices on goods, and workers, in the form of lower real wages. [...] On the tax revenue issue, the good news is that the steady reduction in the corporate income tax rate over the past decade has not been costly in terms of lost revenue: corporate tax revenue as a share of GDP stayed well above 2% except during the serious economic downturns in 2002 and 2008; in 2007, the share reached 2.6%, the highest level since 1977.
government politics economics economy taxation finance tax system recession canada business business tax competition competitiveness corporations depreciation economic growth investments labour tax brics government budget taxes corporate income tax corporate income taxes corporate tax business finance competition (companies) economy, business and finance bric

Authors

Chen, Duanjie

Pages
17
Published in
Canada

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