Annual ranking shows Canada more attractive to investment, outpacing U.S.
CALGARY-- As a result of business tax reform since 2005, Canada has become the most tax-competitive jurisdiction in the G-7 according to a report released today by The School of Public Policy. In their 3rd Annual Global Tax Competitiveness Ranking, authors Jack Mintz and Duanjie Chen contrast the business tax regimes of 90 countries worldwide in terms of their impact on growth.
"Thanks to recent reductions to the corporate tax rate, Canada now has the most competitive tax system for business among the G-7, the 20th most competitive in the OECD and it ranks 57th among the countries we surveyed," Mintz said. "The result has been greater investment and improved economic growth despite recessionary pressures."
Mintz and Chen's report includes a cross-reference of corporate tax rates versus government revenues from these taxes. They find that despite reductions to the corporate tax rate since 2000, revenues have grown with the economy. The authors attribute this to profit-shifting, or more investment into the Canadian economy by companies looking to capitalize on favourable tax rates.
While Canada is reaping the rewards of its 19.9 percent Marginal Effective Tax Rate (METR), the U.S. is perilously lagging behind. Their METR sits at 35.6 percent: last among the 34 OECD countries.
But this large gap is not something Canadians should be happy about according to Mintz. "The U.S. is our largest trading partner and our economies are so closely linked that we really do need the U.S. to get their act together and reform their tax system," he said. "After all, when they lose out on investment, we lose out too."
The authors warn, however, that in the past year, Canada slipped back somewhat. Mintz and Chen identify B.C. and its decision to renege on the Harmonized Sales Tax as hurting Canada's competitiveness. They also issue a warning to Ontario whose planned general corporate tax rate reduction is stalled until it can be accommodated fiscally. " Ontario will lose $7.5 billion in capital investment in the long run by forgoing plans to reduce the general corporate rate to 10 percent by mid-2013," the authors write.