C.D. Howe/MEI study: Montreal a champion when it comes to taxing investment
Montreal, Tuesday, November 24, 2015 – With the heaviest tax burden of large Canadian cities, Montreal is less welcoming than its competitors when it comes time to attract investment.
Even though Quebec’s largest city maintains overall operating costs that are among the lowest in the world, the last dollar of returns generated by investment is taxed a total of 76 cents. In comparison, the last dollar of returns from investments made in Saskatoon is only taxed 43 cents, reveals a Viewpoint on the tax burdens of Canadian municipalities, published by the MEI in collaboration with the C.D. Howe Institute.
Although these marginal effective tax rates (METRs) can seem high, they reflect all the various taxes applied to future returns from current investments, and take into account all the subtleties of the tax systems, as well as the potential tax deductions.
“When a company looks for a place to invest, it must take into account the tax burden associated with investment. Taxes that are too high in one location will lead companies to turn to other cities, bringing with them the new jobs and economic spillover that accompany their investments,” explains Mathieu Bédard, Economist at the MEI and author of the publication.
The City of Montreal itself is primarily responsible for this state of affairs, since the difference between the tax burden in Montreal and in Canada’s other large cities is explained especially by municipal taxes. The marginal effective rate of these taxes is 57.8% in Montreal in 2015, versus 19.3% for municipal and provincial taxes combined in Saskatoon, the leader in this ranking.
These taxes are very bad for investment. A study carried out in Ontario reveals that collecting an additional dollar of property taxes costs the Ontario economy $6.67 in lost investment. Yet the most significant source of economic growth in Canada from 1961 to 2008 was precisely investment in capital.
The City of Montreal has nonetheless made some efforts in this regard over the past two years, as underlined in the Viewpoint. Its tax burden has fallen by 3 percentage points compared to 2013.
“Montreal’s numerous selling points, like quality of life and reasonable labour costs, are undermined by taxes that are among the highest in Canada. Since the largest part of this burden comes from the municipal level, the City of Montreal has an interest in continuing its efforts in order to attract the investments that will ensure its prosperity and the standard of living of its residents,” concludes Mathieu Bédard.
The Viewpoint entitled “Investing in Montreal: A Tax Burden That Ranks among Canada’s Highest” was prepared by Mathieu Bédard, Economist at the MEI. It was written in collaboration with the C.D. Howe Institute based on data contained in “Business Tax Burdens in Canada’s Major Cities: The 2015 Report Card,” which is being published simultaneously. The Viewpoint is available on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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