CARI Convention: A Taxing Situation

In a business world that’s getting smaller, Canada and its provinces may need to examine the way they tax manufacturers and corporations.

Jack Mintz, of the University of Toronto’s C.D. Howe Institute, told attendees of the Canadian Association of Recycling Industries (CARI) Convention in Toronto that Canada could look to Australia for a tax framework that may be worth emulating.

Mintz gave a presentation entitled “Canada’s Tax Competitiveness” to the 200+ assembled recyclers and suppliers who attended the CARI Convention in Toronto June 11-13.

A chart aggregating the averages of general corporate income taxes and the marginal effective tax rates on manufacturers and service firms places Canada behind only China and Germany among the world’s 20 largest economies. Since China can offer such low wages, only Germany among developed nations seems to tax its businesses as highly.

Compared to its closest direct competitor, the United States, Canada has lower taxes on mining and oil and gas production, but taxes on all other types of companies are higher in Canada than in the U.S. The tax rates in Ontario are even higher than the Canadian average.

While Canada’s economy grows more slowly compared to NAFTA partners the United States and Mexico, Australia has been able to structure a tax system that allows it to remain competitive with the nearby economies of eastern and southern Asia.

“All this suggest to me that we’re going to need tax reform,” says Mintz, who also noted that the Bush Administration and the U.S. Congress may work to agree on tax reform measures that will further separate the two nations if Canada does not act.

Even if the U.S. efforts do not succeed, Mintz says Canada’s higher unemployment rate and lower productivity rate demonstrate that, regarding tax restructuring, “we need to do it anyway in Canada if we’re going to see improvements in the business climate.”

In an earlier presentation, University of Toronto economist Dale Orr also remarked that Canada needs to “have a more competitive tax system, and noted that the government should use the tax code to assist corporate productivity rather than using it to re-distribute dollars.