'Burdensome climate for investment': Canada's rates
rank second-highest among industrialized countries
National Post
Wed 21 Sep 2005
Page: A9
Section:
Canada
Byline: Paul Vieira
Source: National Post

OTTAWA - Taxes on business investment in Canada are
second-highest among 36 industrialized nations and that poses the greatest
threat to this country's future prosperity, says a report on taxation from the
C.D. Howe Institute, an
influential think-tank.

The report indicates Canada has moved from third-highest to second in the
span of a year, data collected by the institute showed. It warned unless Ottawa
and the provinces act, the country stands to lose billions in investments and to
fail in efforts to reverse a drop in Canada's standard of living.

"Canada has a significant problem with international competitiveness for ...
capital investments, with unneeded differences in tax burdens on business
investments," the institute warned in a report released yesterday.

"Despite the past and planned cuts in corporate rates, Canada will retain a
burdensome tax climate for investment, undermining its prospects for robust
economic growth -- unless governments act."

This review of corporate taxation follows on the heels of a policy paper from
the country's largest business group, the Canadian Chamber of Commerce, that
demanded $3-billion in tax cuts, starting next year.

The tax relief is required, the chamber argued, to encourage businesses to
invest in technology that would help boost productivity rates -- which are key
to ensuring economic growth.

The Liberal government's commitment to competitive business taxes has been
under attack after it removed close to $4-billion in relief from its last budget
at the behest of the left-leaning NDP. It was part of a budget deal to ensure
NDP votes in the House of Commons that would keep the minority Liberal
government alive. The Liberals have said those corporate tax cuts will be
reinstated.

Both the Prime Minister and Finance Minister have argued the country's
corporate tax rate is competitive compared with nearby countries, most notably
the United States. In fact, the general corporate income tax rate in Canada, at
34.3%, is indeed less that the 39.2% charged by Washington -- but remains the
sixth- highest among industrialized countries surveyed.

For its study, the C.D. Howe looked beyond
the corporate income tax rate, and incorporated capital taxes, sales taxes on
business inputs, such as machinery and other capital-related charges in 36
countries.

As a result, Canada's effective tax rate on business is 39% compared with
37.7% in the United States.

Only communist China has a higher effective business tax rate than Canada, at
45.8%.

"We can't say we are competitive. We have some serious issues we need to deal
with," Jack Mintz, president of the C.D. Howe Institute, said
in an interview. "I find it very disappointing that people would still say that
we are competitive only because our corporate income tax rate is lower. It is
sort of like looking at a body with heart disease and saying it is healthy
because the arms and hands are fine."

Saskatchewan and Ontario have the highest effective rates of business taxes
among the provinces, at 44.1% and 43.5% respectively. Even though they have tax
cuts planned, the two provinces will continue to have the highest business rates
by the end of the decade, the report said. (Newfoundland, New Brunswick and Nova
Scotia vie for the lowest, all of which have rates in the 20s.)

The institute outlines a number of recommendations for governments to follow
in order to restructure the business tax regime. Among them:

- Lower the corporate income tax rate to 25%. This will spur investment by
reducing the cost of financing for business and discourage companies from moving
to other jurisdictions.

- Kill taxes on capital. To date, the federal government, Alberta and British
Columbia have moved to remove these levies.

- And raise the rates by which companies can write off older equipment. This
is crucial, the institute argues, as old technology needs to be replaced with
more productivity-enhancing machinery.

Illustration:
• Graphic/Diagram: C.D. Howe Institute,
National Post / CORPORATE TAX: (See print copy for complete
graphic/diagram.)

Edition: All but Toronto
Story Type: Business;
Statistics
Note: [email-masked]
Length: 635 words