TORONTO, - Business property taxes are a major part of the tax burden on new business investment that can tip the balance in the competition for capital among Canadian cities and provinces, according to a report released today by the C.D. Howe Institute. In "What Gets Measured Gets Managed: The Economic Burden of Business Property Taxes," authors Adam Found, Benjamin Dachis, and Peter Tomlinson conduct groundbreaking research into the impact of business property taxes (BPTs) in localities across Canada and show where they are highest and lowest.
"Before a business makes a new investment in a locality, it must know the tax burden it faces; economists call this the marginal effective tax rate. In this report, we show for the first time just how much business property taxes drive up that rate in jurisdictions across Canada," said Adam Found. "At present, business property taxes aren't included in government estimates of the total tax burden on new investment, but they should be."
By analyzing the impact of provincial BPTs, the authors find marginal effective tax rates (METRs) are substantially higher than previously thought, especially in New Brunswick, Prince Edward Island, Ontario, and Saskatchewan. By measuring BPTs in the largest city in each province, the authors find BPTs have the largest effect on METRs in Montreal, Halifax, Charlottetown, and St. John's.
Large tax burdens due to a BPT - a form of capital tax - show that governments should include provincial and net municipal BPTs in their METR estimates. If governments did so, they would be more motivated to lower BPT rates, thus reducing the tax burden on new investment.
"Including BPTs in estimates of the marginal effective tax rate would give jurisdictions a clearer picture of their comparative attractiveness for new investment and motivate them to lower BPTs," said Benjamin Dachis.
For the report click here:
For a Chart of Tax Burden by Major City click here:
For the Technical Appendix click here:
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