Why Do Taxes Matter In Growing Our Economy?

Did you know that Canada ranks only 16^th on the OECD’s  International Tax Competitiveness Index; behind Estonia, which is #1, and even Turkey which is #9.  It ranks 31^st for individual taxes and 27^th for corporate taxes.  High taxes can have many negative consequences for a competitive economy.  Which are the most damaging? 

Do Tax Rates Matter in Economic Resilience and Competitiveness?   The short answer is yes. The most damaging of all the taxes in the tax mix are corporate taxes, followed by personal income taxes, consumption taxes and property taxes.  According to the aforementioned Index:

“The structure of a country’s tax code is a determining factor of its economic performance. A well-structured tax code is easy for taxpayers to comply with and can promote economic development while raising sufficient revenue for a government’s priorities. In contrast, poorly structured tax systems can be costly, distort economic decision-making, and harm domestic economies.”

It goes on to say that a competitive tax code is one that keeps marginal tax rates low. High taxes can dampen productivity and drive legitimate business activity underground. That causes economic growth to suffer. 

That’s all very important in a globalized world, where capital is highly mobile. Businesses will look for countries with lower tax rates on investment.  This can lead to slower economic growth for countries, which lose those investment dollars.   

New Economy Measures.  Looking forward, there are new measures of competitiveness to consider as economies change to adapt to new crisis.

In a report for WWWEurope^[1], Competitiveness under New Perspectives, “outcome competitiveness” was discussed under three pillars:

1. Income pillars - Starts with GDP per capita measures of net national income, disposable household income and final household expenditures.  
2. Social pillars - Measures poverty risk, inequality and youth unemployment.
3. Ecological pillars – Measures environmental outcomes such as resource productivity, greenhouse gas emissions, energy intensity and electricity produced from renewable energy resources.