e-brief Still a Wallflower: The 2008 Report on Canada’s International Tax Competitiveness

Business taxation is one of government’s most important policy levers for stimulating economic growth and improving the wellbeing of Canadians. In the past decade, federal and provincial governments have addressed serious shortfalls in Canada’s business tax policies, by reducing corporate income tax rates, improving the capital cost allowance system and reducing or eliminating capital taxes. This has improved Canada’s tax competitiveness, although as we show below, Canada’s rank as 11th highest among 80 countries, continues to reflect high marginal effective tax rates on capital, especially in the service sectors. This indicates the need for a serious new approach to industrial policy and tax reform, which ought to be an important topic in the current federal election. The recent slowdown in our economy is a sharp reminder to Canadians on the importance of growth. A booming business environment enables employers to take on more workers, invest in new technologies and pay higher salaries to attract workers with needed skills. Contracting economies imply employee layoffs, postponement of investment plans and lower wages. Insofar as Canadians care about economic growth, they should also care about further increasing our country’s international tax competitiveness. A competitive tax regime attracts business investment that is so crucial to improving our mediocre productivity record, raising incomes and stimulating economic growth