High taxes scare away entrepreneurs, Fraser Institute report says
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The former Kathleen Wynne government’s tax rate on high earners may have prevented the creation of more than 2,100 new businesses in the province over four years, a new report from the Fraser Institute estimates.
The Effects on Entrepreneurship of Increasing Provincial Top Personal Income Tax Rates in Canada, released Tuesday, looked at 30 years of Canadian data and noted a declining number of new businesses starting up over that time as a percentage of all businesses.
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The study concluded that the climbing top tax rates limited rewards and thus discouraged entrepreneurship.
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“If the new (Doug Ford) government in Ontario wants to spur entrepreneurship and increase economic prosperity, reducing the province’s top personal income tax rate would be a good place to start,” Charles Lammam, director of fiscal studies at Fraser Institute, said in a statement.
The Fraser Institute study — authored by Ergete Ferede, an associate economics professor at MacEwan University — sought to quantify how many businesses are not started because of tax rates.
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The report says that for every 1% increase to a province’s top marginal income tax rate, there was a corresponding 0.06% decrease in the business entry rate – the percentage of new start ups – over a four-year period.
“That drop in the number of businesses ranges from 14 in the case of Prince Edward Island to 696 in the case of Ontario,” the report says.
As Ontario increased its top marginal rate by 3.1% to 20.5% in 2013, the report estimates the province’s taxing ways may have prevented over 2,100 new businesses by 2017.
“Ontario has the second highest top personal income tax rate in North America, and one of the highest in the developed world,” the Fraser Institute said of the 2018 budget.
When the Ontario Liberals began hiking taxes on the wealthiest people in 2013-14, they was a minority government anxious for the support of Andrea Horwath’s NDP which had long argued the rich could afford to pay more to support more services for the poor.
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