2020 TAX COMPETITIVENESS REPORT: CANADA’S INVESTMENT CHALLENGE

Philip Bazel and Jack Mintz
Additional contact information
Philip Bazel: University of Calgary

SPP Research Papers, 2021, vol. 14, issue 21

Abstract: Canada is already at a disadvantage with lagging growth and productivity even before the massive economic destruction caused by the COVID-19 pandemic. Before the pandemic hit, Canada’s corporate tax system was already becoming uncompetitive in attracting highly profitable investments relative to other developed countries. Canada’s general corporate tax rate, averaging 26.1 per cent, is within spitting distance of the highest rates in the OECD. While some industries may benefit from special preferences, the corporate tax has become increasingly inefficient and complex with targeted measures, and in some cases impeding the allocation of capital to growth industries like communications and services. This was having a serious effect on Canada’s economic health before COVID-19. Business investment in Canada has lagged that of many countries since 2015, well before the pandemic. Productivity has been weak and wages for workers have been depressed, particularly for unskilled labour. Additionally, the corporate tax system currently distorts the allocation of capital in the economy, favouring some sectors over others. In fact, some of the sectors least-favoured by the tax system — including retail and tourism, which face an eight-point tax disadvantage compared to the government- favoured manufacturing sector — are the very ones that had the roughest time during the pandemic and face a more difficult road to recovery. If Canada is going to “build back better,†as some politicians claim to want, it will need investors willing to build things. That will require governments focusing on policies that stimulate economic growth, including tax reform. While it is politically popular for some parties to push for higher corporate tax rates, that won’t solve our investment problem. Some limited benefit can be realized by reducing tax rates and broadening the corporate base elsewhere but Canada’s unwieldy corporate income tax has become too serious for those measures to sufficiently address the problem. A broader approach to corporate tax reform will be required to ensure that Canada is able to recover to good economic health after the COVID-19 pandemic.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.policyschool.ca/wp-content/uploads/202 ... TkWv_6lz3qT6hN_hf5L0 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:clh:resear:v:14:y:2021:i:21

Access Statistics for this article

More articles in SPP Research Papers from The School of Public Policy, University of Calgary Contact information at EDIRC.
Bibliographic data for series maintained by Bev Dahlby ( this e-mail address is bad, please contact ).