Tax changes prevented the creation of over 12,000 new businesses in Canada since 2015

• Federal revenues collected by Ottawa’s most recent tax hike are equivalent to the entirety of production subsidies promised to Volkswagen and Stellantis.

Montreal, September 21, 2023 – Income tax increases since 2015 have impeded the creation of thousands of businesses, shows a Montreal Economic Institute study released this morning.

“The greedier the government gets, the less money individuals have left to finance their projects,” explains Emmanuelle B. Faubert, economist at the MEI and author of the study. “The result is that thousands of potential entrepreneurs have to delay their business ventures, which negatively effects employment, innovation, and productivity.”

The study explains that each increase of one percentage point in the top marginal income tax rate reduces the business entry rate by 0.21 percentage points. Across the country, that means 2,455 fewer businesses created for each point of tax increase.

The federal and provincial changes to top tax rates since 2015 have prevented the creation of an estimated 12,195 businesses, according to the author’s calculations.

By itself, the Trudeau government’s decision to raise the top marginal income tax rate by four percentage points in 2015 led to the loss of 9,820 potential Canadian businesses.

This year, Ottawa expects to collect $2.88 billion from this increase in the top income tax rate.

This is roughly equivalent to the production subsidies promised to Volkswagen and Stellantis by the federal and Ontario governments, namely $2.82 billion per year over a ten-year period.

“For an equivalent amount than what we’re using to subsidize two companies, Ottawa could have had 9,820 more job creators by now if it had just left the money in taxpayers’ pockets,” adds Ms. Faubert. “Between attracting two large companies or allowing the creation of 9,820 more start-ups, the choice should be an easy one.”

The MEI study is available 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 policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship. 

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