NCPA - National Center for Policy Analysis

Canada Cuts Tax -- But Not Enough

May 2, 2000

Canadians have long endured one of the industrialized world's heaviest tax burdens, and many businesses have moved across the border to the U.S. to escape it. The federal government has introduced a five-year personal and corporate tax-cut package designed to make business more competitive and spur the economy. They are the deepest federal tax cuts in the country's history -- but not nearly enough for Canadian businesses.

  • The tax cuts are valued at C$58 billion (US$39 billion).
  • Personal taxes are expected to fall an average of 15 percent during the next five years.
  • The general corporate tax rate will fall to 21 percent from 28 percent, reducing the average corporate tax rate (federal and provincial combined) to 40 percent from 47 percent, making it equal to the current U.S. average.

However, the corporate tax rate will be reduced by only one percentage point in the first two years, and no timeline has been announced for the rest of the cut. Business groups say they need a tax cut now.

In a recent poll, 40 percent of CEOs from companies belonging to the Business Council on National Issues, a lobbying group for large companies, put the likelihood that their own jobs would leave Canada within 10 years at 50 percent or higher.

Moreover, factoring in indexation (inflation adjustment) and a payroll tax increase for the Canada Pension Plan to 9.9 percent from 7.8 percent, the net tax cut is only C$12 billion, says the Canadian Taxpayers Federation.

Source: Joel Baglole, "Canada's Tax Cut Underwhelms Businesses," Wall Street Journal, May 2, 2000.


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