Wednesday, March 31, 2010

Canada's Turnaround from a High-Debt, High-Tax, High-Deficit Country to Lowest Tax Rates in G7

TORONTO GLOBE AND MAIL -- "Canada's relatively low corporate taxes have helped to make this country one of the best places in the world for companies to set up shop. Canada ranks second among 10 key countries as a cost-effective place to do business, and relatively low taxes are one of the main factors, consultants KPMG said in a report released yesterday.

KPMG said one key reason for Canada's high standing is that federal and provincial governments have been cutting taxes and reforming tax laws in recent years. Indeed, Canada now has lower business taxes than any other G7 country.

"It's really over the last 10 years Canada's tax position has changed quite significantly from being a high-tax jurisdiction to now actually leading the G7," said Glenn Mair, director of MMK Consulting, which assisted in preparing the KPMG study.

Since 2000, the overall corporate income tax rate in Canada has fallen to about 31 percent from about 43 percent, said Jack Mintz, chair of the University of Calgary's School of Public Policy. It will fall further, to about 26 percent, over the next few years.

When it comes to attracting business, "there is no question that the tax system helps a lot," Mr. Mintz said. Fifteen years ago, "we were viewed as a high-debt, high-tax, high-deficit country," he said. "Today we look like a much better country, and certainly we had a much better balance sheet going into the recession.""

MP: The Heritage Foundation chart above shows that Canada's corporate tax decrease to 26% over the next few years, will put it 12.7% below the U.S. rate of 39.3%, and bring it below the 26.6% average corporate tax rate in 2008 for non-U.S. OECD countries. In quite a turnaround, it looks like Canada and the U.S. have traded places - the U.S. is now the high-debt, high-tax, high deficit country, and Canada has become the low-debt, low-tax, and low-deficit country.


At 3/31/2010 5:10 PM, Anonymous Anonymous said...

Rates Schmates. Corporations pay taxes, not rates.

And, US corporations pay relatively little taxes.

From Brad De Long's website:

If you are a Republican, you think a low-tax country is the right place to live, right? And now if you read Greg Mankiw he proves that North Korea is the lowest tax country.

South Korean police have been trying to keep Republican lobbyists from trying to cross the border minefields without success all morning. In other news, Coast Guard vessels with bullhorns have been trying to stop Republican entrepreneurs from embarking for Cuba from Key West in small rubber boats...


Greg Mankiw's Blog: Taxes per Person: Some pundits, reflecting on the looming U.S. budget deficits, claim that Americans are vastly undertaxed compared with other major nations. I was wondering, to what extent is that true? The most common metric for answering this question is taxes as a percentage of GDP. However, high tax rates tend to depress GDP. Looking at taxes as a percentage of GDP may mislead us into thinking we can increase tax revenue more than we actually can. For some purposes, a better statistic may be taxes per person, which we can compute using this piece of advanced mathematics:

Taxes/GDP x GDP/Person = Taxes/Person

Here are the results for some of the largest developed nations:

France: .461 x 33,744 = 15,556. Germany: .406 x 34,219 = 13,893. UK: .390 x 35,165 = 13,714> US: .282 x 46,443 = 13,097. Canada: .334 x 38,290 = 12,789. Italy: .426 x 29,290 = 12,478. Spain: .373 x 29,527 = 11,014. Japan: .274 x 32,817 = 8,992

The bottom line: The United States is indeed a low-tax country as judged by taxes as a percentage of GDP, but as judged by taxes per person, the United States is in the middle of the pack.

At 3/31/2010 5:21 PM, Anonymous Benny The Man said...

Canada? Is this the same Canada with national health insurance? And all the cold weather? And boring people?

At 3/31/2010 6:27 PM, Anonymous Anonymous said...

Fact: World Bank study found U.S. effective corporate lower than those of several industrialized nations, including China

In its Paying Taxes 2009 publication, based on its 2009 Doing Business report, the World Bank-International Finance Corporation estimated that the United States has a lower effective rate of current corporate tax than that of several other nations, including Germany, Canada, India, China, Brazil, Japan, and Italy. The publication also included a figure that compared effective and statutory corporate tax rates for several G8 and BRIC [Brazil, Russia, India, China] countries:

At 3/31/2010 6:30 PM, Blogger KO said...

Anonymous said...
Rates Schmates. Corporations pay taxes, not rates.

That's right, and have you noticed that the Administration and Congress are closing ever more "loopholes," and creating new taxes without doing anything with the income tax rate?

At 4/01/2010 12:54 PM, Anonymous Anonymous said...


Canada seems to do everything right except health care.


At 4/01/2010 1:01 PM, Anonymous Anonymous said...

If you assume that your income is proportional to your share of GDP produced, what dose miws analysis say about the distribution of taxes paid by te poor and the wealthy and the middle class?

At 4/01/2010 7:37 PM, Blogger sethstorm said...

That's right, and have you noticed that the Administration and Congress are closing ever more "loopholes," and creating new taxes without doing anything with the income tax rate?

Just as it should be - closing those loopholes prevents revenue from escaping.

At 4/02/2010 6:27 AM, Anonymous Anonymous said...

Canada actually has policies well to the right of the US now(bailouts, housing policy etc). In fact USA is now acting like Canada under PM Trudeau, and it was good old Pierre who turned Canada into an absolute economic basketcase by the 1980s .

It was while Paul Martin was Finance Minister that Canada began to move away from socialism. Cutting taxes, privitization and deregulation. Harper has continued those policies. Today if you live in BC or Alberta, you live in a relative low tax jurisdiction.

As for healthcare, it would be nice if the American leftists actually were to learn something about Canadian Medicare. Already in Que, private healthcare is allowed and in BC there is a pending court case to allow healthcare there as well. So single payer is slowly fading away in Canada.

The Que Supreme Court ruled that if Healthcare was a right, citizens then had the right to purchase it in the private market.

At 4/02/2010 9:35 AM, Anonymous Anonymous said...

LOL... "It's all Trudeau's fault" That was either pure fiction or a rewriting of history. Trudeau, except for a ten month period was Prime Minister of Canada from 1968 and 1984. In true Keynesian fashion he increased deficits in response to the 1973 oil crisis and the 1981 recession/crash. Thanks Pierre, that was the right thing to do.

A funny thing happened in Canada in the early nineties: Allthough deficit spending had stopped the size of the goverment debt was perceived as a real problem by the majority of Canadians.

Armed with this mandate, Prime Minister Chretien (a Trudeau protege who served first as a junior minister and then as Justice Minister in the eighties) went to work with Finance Miniter Martin to reduce goverment spending AND pay down the debt. They were somewhat lucky that the nineties were good times. While revenues kept climbing the goverment kept spending on a tight leash. We had surpluses and we paid down the debt.

Canadians have gotten used to surpluses from the federal goverment and are sort of proud about it. We are again running deficits to cope with this present recession but polls show that Canadians want their federal goverment to return to surpluses as soon as possible.

If there is a lesson to be learned from this recession it's that balancing the budget during good times is not enough, countries have to pay down the debt as well. This gives the "wriggle room" needed to deal with the next downturn without plunging the country in debt that is so high that it impairs a return to normalcy when the economy starts expanding again. This, I'm afraid, is the position the US now finds itself'll be painful for awhile...but hey, what doesn't kill ya makes ya stronger. You'll get through it.

As for: "So single payer is slowly fading away in Canada." That is more fiction from that post.

The fundamental difference between Canada and the USA, in my opinion anyway, is that while Americans have a deep distrust of their federal goverment and do not trust it to do anything right...Canadians believe that the federal goverment should do some things that the private sector is just not suited for (so did Keyne BTW)...and health insurance is one of those. Contrary to what Americans think we do not have socialized medicine in Canada, we have socialized health insurance. There's a big difference.

In the province where I live and a couple of others, we have goverment car insurance and it works very well. The body shops and mechanics don't work for the goverment...they get paid by them. Now if you just decide you'd like your car repainted one day (no accident/claim), you go shopping for bodyshop services and pay for it yourself. Same goes for plastic surgery on the healthcare side which is not covered by goverement health insurance. That is the only extent that "single payer is slowly fading away in Canada".

In Canada healthcare wise we have the best of both worlds. Health insurance is more than affordable, everybody is covered craddle to grave. There are wait times, but hey, when's the last time you went to get your car fixed and did not have to make an appointment??? The wait times issue is way overblown IMO. We have the system we deserve, if wait times get too long the electorate pressures politicians to put more money in the system, if they don't, they get voted out. Now if you're rich and don't want to wait you can simply go to the US...and talk about convenient, 90% of Canadians live within a 2-3 hour drive from the US border! Of course while you're down there in the "country club" hospital you'll have to give interviews and rant about how bad the Canadian system is...LOL, yeah sure

Have fun down there...

At 4/06/2010 11:12 AM, Blogger Colin said...

So funny how Americans respond to this, stick your head in the sand and believe that the USA is the greatest. You US guys are so blind, it's retarded.

As a British entreprenuer living in Canada, and an outsider on the nationalistic bias, I have to say Canada is looking like a good solid place to do business.

However, thanks to GW Bush running up so much national debt (killing iraquis for oil is expensive!), the states is looking pretty7 heftily screwed, and it will take severl generations to sztart paying back that debt.

But then again, all empires must fall, and with the US' recent foreign policy of killing civilians for oil, it's seems justified that the US should suffer for it's sins.

Just a shame it's America's poor and not the Republican rich that will get shafted on this..


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