Canada drops two places on the 2024 International Tax Competitiveness Index
Montreal, October 21, 2024 – Recent tax measures such as the increase in the capital gains inclusion rate have made Canada a less attractive place to do business, notes a researcher from the MEI reacting to the release of the International Tax Competitiveness Index.
“The Trudeau government has consistently introduced tax policies that punish and dissuade entrepreneurship and success,” says Emmanuelle B. Faubert, economist at the MEI. “At a time when we’re looking to attract investment, a reduction in the competitiveness of our fiscal environment is not a good sign.”
The researcher reacted to the release of the Tax Foundation’s annual International Tax Competitiveness Index, which measures the extent to which a country’s tax code is competitive and neutral in relation to other OECD nations.
Canada’s overall rank dropped by two spots this year, now standing at 17th out of 38 OECD countries. The Index cites the decision to increase the capital gains tax inclusion rate as a significant reason for the drop.
In March, the Trudeau government announced an increase of the capital gains tax inclusion rate from 50 per cent to 66.7 per cent.
According to the Index, Canada ranks 35th out of 38 OECD countries for its expensive capital gains taxation system. This is notably behind France (33rd), the United States (27th), and Germany (23rd).
The report notes that capital gains taxes are “a form of double taxation” that impacts the economy by changing the business incentives to fund new projects.
According to an MEI-Ipsos poll, 60 per cent of Canadians fear that this tax hike will harm the country’s economic health, while 70 per cent believe it will further burden the middle class.
An MEI study published in May found that this rise will also deter investment, explaining that such a tax hike jeopardizes the availability of venture capital by cutting into projected returns without lowering the high risks investors face—especially considering that 90 per cent of start-ups fail.
Canadians face a high tax burden compared to other OECD countries, with Canada ranking 26th for corporate taxes and 31st for individual taxes.
The corporate tax rate in Canada stands at 26.2 per cent, nearly 3 percentage points above the OECD average. On corporate taxes specifically, Canada ranks near the bottom of the index, while high-tax Scandinavian countries like Sweden, Finland, and Norway rank significantly better at 6th, 7th, and 13th, respectively.
“Ottawa seems determined to discourage entrepreneurship, outpacing other countries in making investment less attractive,” said Ms. Faubert. “In the midst of a productivity crisis, Canada should be focused on making our tax regime more competitive to attract investment—but instead, we’re moving in the wrong direction.”
You can read the 2024 International Tax Competitiveness Index here.
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The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
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