Economic Recovery: Tax Reforms Play Key Role

Evelyn Jacks

The right tax structure is critical for post-pandemic economic recovery as fragile, debt-laden governments and businesses alike venture out of crisis towards economic stability.  The Fraser Institute, in a new analysis, makes an interesting case for consumption taxes to minimize the potential damage to economic growth from other forms of taxation.

Key facts offered in that analysis  offer an important a glimpse into Canada’s economic future.  Comparing various types of taxation options, the study found the following:

• Business Taxes. Canada has the 10th highest corporate tax rate (out of the 36 OECD countries).
• Capital Gains Taxes.  Canada ranks below average and risks being among the highest-taxed countries if rumoured government changes to the tax rules are implemented.
• Personal Taxes.  Canada has the seventh-highest top combined (federal and provincial) personal income tax rate in the OECD. Several provinces currently have top combined tax rates exceeding 50 per cent, which is substantially higher than the majority of U.S. states and most other OECD countries.

The study makes it clear that the road to recovery should avoid damaging taxes.  Business, personal and capital taxes are productivity inhibitors when compared to consumption taxes.  It is interesting that Canada relies less than other countries on sales taxes.  Raising the GST would actually make us more competitive, by allowing us to reduce rates on those more damaging taxes.  

In fact, if governments reduced high marginal tax rates and the work week itself to 4 days from 5, productivity growth may actually improve.  The study concludes that governments should pursue policies that encourage investment, entrepreneurship and innovation as a way to stimulate our economy. 

We are pleased to welcome one of the authors of the study, Dr. Jack Mintz to the DAC Acuity 2021 conference October 17 – 19. Join us!