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Canada's personal income taxes on highly skilled workers now among the highest in industrialized world

The Fraser Institute
By The Fraser Institute
March 17th, 2016

Canada’s personal income taxes on highly skilled workers now among the highest in industrialized world

Rising federal and provincial personal income tax rates on highly skilled, educated workers (such as entrepreneurs, business professionals, engineers, and doctors) are hurting Canada’s economic competitiveness, concludes a new study published today by the Fraser Institute, an independent non-partisan Canadian policy think-tank.

The study, Canada’s Rising Personal Tax Rates and Falling Tax Competitiveness, finds that Canada’s top combined federal and provincial tax rate, which is 53.5 per cent (using Ontario’s provincial rate) now ranks as the sixth highest among 34 industrialized countries and second highest among G7 countries, behind only France (based on 2014 figures, the latest year of available international data).

“Next week’s federal budget offers the Liberal government an opportunity to put in place policies that match their rhetoric about the importance of policies that attract and retain highly skilled workers, entrepreneurs, and investors,” said Charles Lammam, director of fiscal studies at the Fraser Institute and study co-author.

“Competitive personal income tax rates are critical to fostering a positive economic climate but recent tax increases, federally and in many Canadian provinces, harm our ability to attract skilled workers and in fact discourage Canadians from realizing their full potential.”

For example, this year Canada’s Liberal government introduced a new income-tax bracket, increasing the top federal tax rate to 33 per cent from 29 per cent. This increase in the federal tax rate comes on top of numerous recent increases to top rates in Ontario, Alberta and other provinces.

Among the provinces, Nova Scotia has the highest combined top personal income tax rate at 54 per cent, followed by Ontario (53.5 per cent) and Quebec (53.3 per cent). Currently, six of 10 provinces have a top combined federal-provincial rate above 50 per cent.

“A highly skilled worker in Ontario can now lose more than 50 cents of every additional dollar they earn in labour income — hardly an attractive environment for highly skilled workers and entrepreneurs,” said Ben Eisen, co-author and associate director of provincial prosperity studies at the Fraser Institute.

With the new top federal tax rate, some provinces, namely British Columbia and New Brunswick, have started to reduce their top rate to counteract the effect on their tax competitiveness.

The study also notes that Canada’s top tax rates often apply to lower levels of income than is the case in other countries, which further erodes the country’s tax competitiveness.

“In comparisons at multiple income levels, Canada’s personal income tax rates are decidedly uncompetitive compared to those in the U.S., putting Canada at a real disadvantage in attracting and retaining skilled and mobile workers,” Lammam said.

The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries.

Story originated at The Nelson Daily

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