Tax system a drag on productivity
National Post
Mon 26 Sep 2005
Page: FP2
Section:
Financial Post
Byline: Hollie Shaw
Column: FP CEO Poll
Source:
Financial Post

Canada's tax system discourages work and productivity,
distorts economic activity and depresses economic growth, according to a survey
of business leaders across the country.

Results of the COMPAS poll support recent recommendations from the C.D. Howe Institute calling
for for a major overhaul of the tax system and suggesting governments' share of
gross domestic product should drop from 42% to about 30%.

C.D. Howe, which noted Canada's marginal effective tax of
business capital averaged 39% in 2005, the second-highest among 36 industrial
and leading developing countries, said federal and provincial governments should
develop a five-year plan to lower taxes, broaden the tax base and shift taxes
from investment and savings toward consumption.

Eighty-seven percent of the business leaders surveyed by COMPAS agreed that
no one should pay more than a 50% tax rate, while 84% agreed high personal
income taxes discourage work and saving.

The ideal system has low taxes and a broad base so that Canadians can focus
on being productive rather than avoiding taxes, 82% agreed.

"People are making the connection between high taxes and low productivity --
that they are a disincentive to work and savings," said Nancy Hughes Anthony,
president of the Canadian Chamber of Commerce.

"There are a number of factors that economies have to deal with in terms of
productivity -- education, developing infrastructure, research and development
-- but as a foundation, you need a competitive fiscal system.

"I think there is a growing consensus that tax reform is needed if we're
really serious about the whole competitiveness issue.

"We really need not just to look at individual measures, but at an overhaul
that makes sense."

The survey also questioned participants about taxes and income trusts in
light of the federal review of the sector and a decision last week by Ralph
Goodale, the finance minister, to essentially freeze new deals in the sector
pending the outcome of the review.

The vast majority of business leaders-- 75% -- believe the government should
equalize tax policy for corporations and income trusts.

Only 3% of respondents believed Ottawa should impede the formation of income
trusts. One executive said income trusts are a "godsend" for retirees and those
nearing retirement, particularly in era of low interest rates on other
fixed-income financial products.

But 54% of respondents agreed that Canada's economic growth may slow because
income trusts will distribute more of the profit currently reinvested in growth;
another 30% felt the government will lose too much tax revenue if many more
companies become trusts.

The COMPAS study, conducted in conjunction with BDO Dunwoody and the Canadian
Chamber of Commerce, targets hand-picked business leaders.

In studies of the general public, comparable surveys are deemed accurate to
within about 8.5 percentage points, 19 times out of 20.

Compas says its weekly survey of business leaders is generally more accurate
than a random public opinion poll because the Web-based survey targets a
smaller, more focused group.

Full details from this week's survey are available online at
compasresearch.com.

Illustration:
• Graphic/Diagram: COMPAS Inc.,
National Post / FP CEO Poll: (See print copy for complete
graphic/diagram.)

Edition: National
Story Type: Business; Statistics

Note: [email-masked]
Length: 496 words