Canada's global tax competitiveness slipping, study warns
Calgary expert Jack Mintz warns NDP proposal to hike taxes would lead to corporate flight
Canada’s global tax competitiveness is slipping because of provincial tax policies that increase the taxes on investment, according to Jack Mintz, director of the University of Calgary’s school of public policy.
Mintz told a news conference Tuesday that Canada has fallen 11 spots in the past year when comparing the tax environment of 90 countries. Mintz and Duanjie Chen of the Calgary-based school created the annual Global Tax Competitiveness Ranking, based on corporate tax rates around the world.
Canada has the best ranking among G7 countries and is ahead of the U.S., U.K., France and Japan, but behind Ireland, Finland and the Netherlands.
Canada’s fading advantage is the result of recent anti-competitive provincial tax policies that increased the cost of investment.- Jack Mintz, University of Calgary
The average of marginal effective tax rates for 2013 within the OECD group is 19.6 per cent, higher than the marginal rate in Canada of 18.6 per cent, but the Canadian rate is still lower than 17.8 per cent recorded across the 90 countries studied.
“Canada’s fading advantage is the result of recent anti-competitive provincial tax policies that increased the cost of investment,” he wrote in his annual report.
“This includes, most notably, British Columbia’s decision to reverse the harmonization of its provincial sales tax with the federal GST, as well as recent corporate income tax rate hikes in B.C. and New Brunswick.”
Mintz, a longtime advocate of low corporate tax rates, recommended that Saskatchewan, Manitoba and B.C. move toward a harmonized sales tax to improve Canada’s competitiveness.
Critical of Mulcair's call for tax hike
Mintz said Canada’s current average corporate tax rate is about 26 per cent, a number that combines federal and provincial taxes. The federal corporate tax rate is 15 per cent, the lowest since 1938, as the result of successive tax decreases by the federal government.
But he warned against “reckless populist politics” that call for an increase in corporate taxes so that corporations pay a larger share of Canadian tax. Federal NDP Leader Thomas Mulcair would raise the federal tax rate on business to about 22 per cent, one of the highest in the world, Mintz said.
The consequences of that would be corporate flight from Canada and an erosion of the tax base, Mintz said.
“There would be a lot of incentive for businesses to shift profits out of the country into low tax havens. There would be a loss of capital and investment in Canada,” he said.
Mintz said it’s easy for multinational businesses to shift profits to low-tax havens and efforts now at the G20 to stop such practices are likely doomed to failure.
It’s more effective for countries to keep tax rates low and broaden their tax base, thus bringing in more tax money overall.
Canada needs to improve tax neutrality
Canada is making a mistake in not establishing more tax neutrality in its system, Mintz said, pointing out that manufacturing, mining and forestry pay less than service industries in many provinces.
“Given the importance of the service industry, it’s unusual to support the old industries at the expense of the growing service sector,” he said.
Mintz warned that tax competitiveness is a moving target and there may be more latitude for Canada to lower corporate tax.
The U.K. recently announced plans for reducing its corporate income tax rate to 20 per cent by 2015, so Canada may also lose its top ranking in tax competitiveness among the G7 countries.