Tax increases on Canadian biz proving costly to gov't: Study
· Toronto Sun
Imposing higher income taxes on businesses costs Canadian governments more money in reduced economic activity than they receive in increased revenue, according to a new study by the Fraser Institute.
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The fiscally conservative think tank assessed corporate income tax rates in four major provinces and their immediate impact on private investment, research and development, entrepreneurship, business activity and productivity, meaning how efficiently an economy generates wealth.
The study — How Costly Are Corporate Income Taxes in the Short Run? — by Ergete Ferede, found that every $1 increase in provincial business taxes costs the Alberta economy $1.47; $1.55 in Quebec; $1.66 in Ontario and $2.37 in British Columbia.
The calculations were based on a one percentage-point increase in corporate income taxes reducing the tax base by 3.10% in Quebec; 3.47% in Ontario; 4.0% in Alberta and 4.82% in British Columbia.
“Society loses more than what the government collects in actual tax revenue,” Ferede said.
“Raising business taxes is an inefficient way for governments to raise revenue, and it comes with significant trade-offs in the form of less investment and economic activity, and reduced productivity growth.
“With provincial governments running large deficits and piling on debt, there may be a temptation to raise business taxes to generate more government revenue, but this is ill-conceived policy that would further damage provincial economies.”
Similar findings elsewhere
The Fraser Institute’s report is similar to the findings of many other Canadian economic studies that high taxes on income for both businesses and individuals discourage economic growth and contribute to low productivity — the output of an economy per capita.
Canada’s productivity over the past decade has lagged behind the G7 countries, especially the U.S., as well as most developed countries in the 38-nation Organization for Economic Co-operation and Development.
Low productivity has been described as everything from a “break the glass” emergency by the Bank of Canada to the “Achilles heel” of the Canadian economy by the federal government.
Many economists argue, as does the Fraser Institute study, that raising taxes on consumption (for example, the GST and provincial sales taxes) is preferable to raising taxes on income, which discourages investment, innovation and risk-taking.