Think-tank calls for tax relief: Effective tax rate
on investment No. 2 among 36 nations
The Ottawa
Citizen
Wed 21 Sep 2005
Page: C2
Section: Business
Byline: Eric
Beauchesne
Source: The Ottawa Citizen

Canada taxes investment more heavily than any competing
country except China, according to a report by an economic think-tank, which
used the findings to back a call for multi-year tax relief from the federal and
provincial governments.

Canada's effective tax rate on investment is the second-highest of 36
nations, posing a threat to jobs and incomes, the C.D. Howe Institute said
yesterday. Canadian governments must make taxes more supportive of work, saving
and investment to compete in a world in which both people and capital are
mobile, it said in its 2005 Tax Competitiveness Report.

Canada's tax system discourages work at all income levels, and heavily taxes
both personal savings and business investments, it said.

It's not that Canada's total tax burden is heavy, at least in relative terms.
The report puts Canada in the middle of the pack of industrial countries with
government revenues equal to about to 41.7 per cent of GDP.

At 39 per cent, Canada's marginal effective tax rate on capital investment is
second only to China which, it adds, often negotiates lower rates with
investors. Saskatchewan and Ontario have the most punitive taxes on investment,
with marginal effective rates close to 44 per cent. Those high rates discourage
investments that raise productivity and wages, the report argues.

And Canada's marginal personal income taxes are also at punitive rates,
especially for lower-income Canadians, because of the clawback of social
benefits as incomes rise, it added.

The report recommends lower personal income-tax rates, less severe stacking
of benefit clawbacks, better tax treatment of savings through tax-prepaid
savings plans and generous limits on pension contributions.

It also calls for lower corporate income-tax rates, an end to capital taxes,
increases in the rates at which companies can write off investments to better
reflect actual depreciation, and an end to withholding taxes.

To offset the costs of those tax cuts it argues that both the business and
personal tax systems should be broadened by removing ineffective tax "gimmicks."

Edition: Final
Story Type: Business
Length:
328 words