Tax Policy

Tax policy is an essential lever for creating competitive advantage in a global economy. It has a critical impact on the ability of Canada to attract people and investment, of companies to grow and to create jobs, and of families to build better lives for themselves and for their children.

• Taxes are necessary to pay for the services that Canadians judge can best be delivered through governments, but governments must deliver value for money in order to minimize the resulting burden on the economy.
• Tax policy should emphasize the forms of tax that are least damaging to competitiveness. In principle, this requires a tax structure more heavily geared to taxation of current consumption rather than of incomes or of savings and investment.
• Personal income tax rates, especially on capital gains, have come down significantly but remain much higher than in the United States. Three particular issues remain to be addressed:
  • the basic personal exemption must rise to remove more low-income Canadians from the tax rolls altogether;
  • the impact of the clawback of child tax benefits must be reduced to cut the excessive marginal tax rates that discourage initiative and prevent modest-income families from getting ahead; and
  • the income level at which the top marginal tax rate kicks in, currently $115,739, should be raised significantly to reduce Canada's losses of highly skilled and mobile people and to improve its ability to foster high-income jobs. (In its economic update of November 2005, the federal government proposed to increase this level to $200,000 in 2010.)
• Governments also need to encourage Canadians to save more for retirement and for lifelong learning. Contribution limits for tax sheltered savings plans lag those in the United States and the United Kingdom and prevent many Canadians from achieving retirement income equal to 70 percent of their pre-retirement income, the standard typically enjoyed by members of defined benefit pension plans working for governments and many large employers.
• The CCCE supports as a medium-term goal raising the limit for Registered Retirement Savings Plan contributions to $27,000 a year. The Council also has supported creation of a second tier of tax-sheltered savings plans more like the Registered Education Savings Plan. This type of plan would not offer a tax deduction on contributions but would allow investments to grow and to be withdrawn tax-free in retirement or for educational purposes.
• Corporate taxes are the single most damaging form of tax to economic growth. Significant cuts in corporate taxation therefore could be a critical source of competitive advantage in attracting investment and jobs. The CCCE has recommended the elimination of federal and provincial capital taxes, and a reduction of corporate income taxes sufficient to establish an average ten-percentage-point advantage over the United States. As a relatively small economy next to a very large one, Canada must offer compelling advantages if it wants to win investments in new operations serving the continental market. A significant advantage in the statutory tax rate also is needed to offset other tax advantages in the United States such as faster write-offs and better tax treatment of inventories.
• As we noted in launching our Canada First! initiative in June 2005, the most potent tax trend globally is toward lower taxes on corporate income. Since 1997, 25 of the 30 member countries of the Organization for Economic Cooperation and Development (OECD) have cut corporate taxes significantly. According to the C.D. Howe Institute, Canada now has the second-highest marginal effective tax rate on business investment among 36 major competitors worldwide.