Rate of business start-ups dropping as Canada's population ages; capital gains tax reform an option

TORONTO-- An aging population is stunting entrepreneurism in Canada, finds a new study released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank. "A great deal has been written about the positive link between entrepreneurship and economic growth. What's being ignored, however, is the increasing evidence of a relationship between entrepreneurship and age," said Jason Clemens, co-author of Entrepreneurship, Demographics and Capital Gains Tax Reform, and Fraser Institute vice president.

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The study calculates that between 2004 and 2012, the rate of business start-ups in Canada declined by 16.2 per cent while the proportion of the population over the age of 65 increased by 15.0 per cent. A survey of past research about age and entrepreneurship concluded that younger populations possess characteristics more conducive to enterprising activity. For example, younger people are less risk averse and have a greater willingness to enter new markets or invest in new emerging technologies. Moreover, in older workforces such as Canada's, young people are less likely to be given an opportunity to occupy higher management positions and are therefore unable to obtain the skills needed to run their own businesses. "The problem is not unique to Canada. The phenomena of aging populations and dropping rates of business start-ups has also been documented in other industrialized countries such as the United States," said Niels Veldhuis, study co-author and Fraser Institute president. "As our populations continue to get older, this becomes a worrying trend because new business ventures drive productivity and employment growth in our economies." What can be done to mitigate the decline in entrepreneurism in Canada? While there are a number of policy levers available to policy makers, the study suggests that one option could be an overhaul of Canada's capital gains tax--a tax imposed on the gain of a sale of assets. Specifically, the authors explore two potential reforms: A roll-over--or deferral-- provision as has been implemented in the United States or a complete elimination of the tax; 11 out of 34 OECD countries do not impose any capital gains tax whatsoever. "Capital gains taxes raise only a small amount of revenue for the government but that comes at a considerable economic cost in that they reduce the return entrepreneurs receive from the sale of a business and impede small business finance, thus discouraging business start-ups," Clemens said. "If governments wish to encourage entrepreneurism, reforming our current capital gains tax regime would be a good first step." Niels Veldhuis is in Toronto and available to media. MEDIA CONTACTS: - Jason Clemens, Executive Vice-President, Fraser Institute, E-mail: jason.clemens@fraserinstitute.org - Niels Veldhuis, President, Fraser Institute