Tax burdens are overlooking a key element says C.D. Howe

Tax burdens are overlooking a key element says C.D. Howe

Tax burdens are overlooking a key element says C.D. Howe

The impact of taxes on business investment is the focus of a new report from the C.D. Howe Institute, which says a major factor is often overlooked.

Comparing 10 large Canadian cities, the largest in each province, the report considers corporate income taxes, retail sales taxes, land transfer taxes and business property taxes.

These combined taxes - marginal effective tax rate (METR) - impact business investment decisions.

The report’s authors -  say that often METR calculations do not include property taxes despite their heavy burden.

"We find business property taxes account for about half the total METR on corporate investment, a share much too large for Canadian governments and other analysts to continue overlooking," says Adam Found.

The authors find that Halifax, Charlottetown, Moncton, Montreal, and Winnipeg have the highest overall tax burdens on new investment in 2018.

On the more competitive side of the spectrum are St. John's, Toronto, Saskatoon, Calgary, and Vancouver. Much of the variation in competitiveness is attributable to provincial and municipal business property taxes.

The authors say that the omission of property taxes in METR figures significantly distorts business tax competitiveness within and across jurisdictions.

"When business property taxes are included in METR estimates," says Found, "the rate of return an investment needs to be economically viable is much higher."

Canadian cities outrank US
The analysis also compared 5 large cities south of the border - Boston, New York, Chicago, San Francisco, and Los Angeles – with 5 large Canadian cities and found that the impact of property taxes puts Canada ahead.

"Once business property taxes and local taxes are included in our analysis," says Peter Tomlinson, "the Canadian cities emerge with a notable competitive advantage."

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