NCPA - National Center for Policy Analysis

TAX RELIEF CAN INCREASE CANADIAN PRODUCTIVITY

January 24, 2006

Canada needs C$60 billion in federal and provincial business tax relief over the next five years to spur investment and improve the country's productivity, says the Fraser Institute.

Indeed, Canada has one of the highest tax rates on incremental investment in the world, which discourages the investment critical to improving productivity. Canada's productivity is struggling, says Fraser:

  • Canada ranks 18th among 24 industrialized countries for average labor productivity growth over the past 10 years.
  • Gross domestic product (GDP) per person has declined from 87.9 percent of that in the United States in 1985 to 84.7 percent in 2004.
  • Average after-tax income per person has decreased from 80.4 percent of that in the United States in 1985 to 66.9 percent in 2004.

Fraser recommends:

  • Reducing the federal corporate income tax rate to 12 percent from 21 percent (C$28.8 billion in federal tax relief).
  • Reducing provincial corporate income tax rates by 30 percent (C$18.3 billion in provincial tax relief).
  • Eliminating corporate capital taxes in their entirety at both levels of government (C$12.0 billion in tax relief).
  • Harmonizing provincial sales taxes with the Goods and Services Tax (GST) or implementing provincial-specific programs that completely exclude business inputs from sales taxes.

Canada can reduce the cost of the C$60 billion tax cuts if jurisdictions broaden their tax bases, eliminate tax incentives that favor one type of investment over another, and control spending.

Niels Veldhuis, co-author of the study, says that if productivity continues to lag, many of Canadas' most cherished social programs will face serious financial pressure in the future. By implementing tax relief, Canada would be in the upper echelons for investment and development among industrialized countries.

Source: Jason Clemens, "New Study Recommends $60 Billion in Federal and Provincial Tax Relief to Spark Canada's Productivity," Fraser Institute, January 12, 2006.

 

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