E-mail This Page

TORONTO, October 25, 2001 -- Canadian governments need to rethink their roles to create a distinctive advantage for this country in a world of mobile capital and jobs, concludes C.D. Howe Institute head Jack M. Mintz in a sweeping study released today. The study, Most Favored Nation: Building a Framework for Smart Economic Policy, makes a compelling case for new policies to lower the cost of doing business in Canada, spur growth, and raise Canadians’ standard of living.

"Governments can play a pivotal role in sharpening Canada’s competitive edge," said Dr. Mintz. "A quickly integrating world is tempting Canadians to trade, work, and invest abroad to earn higher income. We need to capitalize on the opportunities created by global economic integration and foster an economic environment that attracts people and capital and fuels growth here in Canada."

Addressing an audience of CEOs and senior policymakers at a joint session of the C.D. Howe Institute and the University of Toronto’s Institute for International Business, Dr. Mintz discussed the impact of taxes and subsidies on the cost of doing business in Canada and the United States. He provided new data to show how taxes on capital and labor — even after allowing for the benefits of public programs in areas such as health, education, infrastructure, and research and development — mean that the cost of doing business is higher in Canada than in the United States. Even after planned cuts to personal and corporate income taxes have been achieved by 2005, Canadian businesses will still face a heavier tax burden than their US counterparts. "Given the dominance of the United States in the NAFTA," Dr. Mintz said, "Canada risks being the maid of honor, rather than the bride, in attracting firms in today’s global economy."

Canada is currently disadvantaged by a combination of circumstances and conscious policy decisions, including the following:

• More than a quarter of all government spending goes to pay interest on gross public debt and for programs that have reduced economic performance, rather than increasing productivity-enhancing expenditures, such as those on infrastructure and education.
• Canadians face a burden of taxes and fees that is much heavier than it was in the 1960s: government revenue as a percentage of gross domestic product (GDP) rose from 30 percent in the 1960s to more than 40 percent in the late 1990s.
• Canada’s tax system has tended to favor traditional industries over certain "new economy" sectors such as communications and transportation. While the United States has seen favorable growth rates in these two industries in the past decade, Canada has taxed them more highly than some industries. However, recent corporate tax reductions should make the business tax system more neutral and competitive.
• Canada’s tax burden, especially on capital, is higher than that in the United States and many other countries.