Impact of tariffs will require supportive measures from policymakers
The Canadian economy thrives on consumer spending, business investment, entrepreneurism, and its competitiveness. But these things are under threat from the potential impact of tariffs.
Ottawa will be drawing up plans to support the economy, but this should include bold personal and business income tax cuts according to a new report from the Investment Industry Association of Canada (IIAC).
This will not only help offset the impact of additional costs for households and businesses but also assist with keeping Canada competitive with the US where President Trump is promising to cut taxes for Americans including an extension of cuts that are due to expire within months.
A new IIAC report highlights that combined federal-provincial top marginal personal income tax rates are over 50% in the majority of Canadian provinces, with combined top marginal tax rates in Newfoundland and Labrador (54.8%), Nova Scotia (54%), Ontario (53.5%), British Columbia (53.3%), Quebec (53.3%), and New Brunswick (52.4%) among the highest in OECD member countries.
It compares the personal tax burden of Canadians with those in the US, particularly the nine states - Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming - where there is no state-level income tax, meaning top rate tax payers only have the 37% federal tax to pay. Even in states which do levy an income tax, California has the highest combined rate at 50.3% while Arizona and North Dakota have the lowest at 39.5%
The report also points out that Canada’s personal taxpayers contribute 36% of all tax revenue, well above the OECD average of 23.6% among its member countries.
Stop the brain drain
Among the concerns is that skilled workers move south of the border with the tax advantages making this more attractive and draining Canada of talented people in key sectors such as tech, finance, healthcare, and energy. This is exacerbated by the US H-1B Visa Program for high-earning professionals.
The IIAC says that to address the concerns, policymakers should reduce personal income taxes, business taxes (from 15% to 13%) to stimulate investment, and simplify the tax system by, for example, reducing the reliance on income taxes and harmonizing provincial sales taxes in British Columbia, Saskatchewan and Manitoba, where they are currently not.
The IIAC warns that if Canada does not act now, it will continue to lose investment, talent, and economic growth to the U.S., especially with potential Trump tax cuts on the horizon. The report urges immediate tax reforms to maintain Canada’s economic resilience.
