Tax and Growth in Manitoba and Saskatchewan: Good tax policy is not a silver bullet for economic growth, but it helps.

Publication, Taxation, David Seymour

Executive Summary

  • Economic growth involves a number of factors that are often difficult to isolate. Tax levels are not a silver bullet on their own, but research shows they can have a significant positive impact on economic growth;
  • Tax causes people to make different economic decisions than they otherwise would—such as whether to start work, work longer hours, acquire new skills or expand their business; These changes in behaviour are measurable and are known as “deadweight losses,” the amount of money that is lost from the economy on top of what the government actually collects in revenue. Studies show that taxing labour costs the economy at least $1.20 for every $1 raised;
  • Productivity is a key issue for economic growth. Lower taxes can help by giving firms more leeway to invest in capital, training, and research and development. They would also encourage risk-taking and entrepreneurship by making such activities more rewarding;
  • Getting people into the workforce is another key to economic growth, and having lower, flatter tax rates is one tool for attracting residents into the formal economy and for attracting potential workers from outside Saskatchewan and Manitoba;
  • Analyzing personal income tax rates for Canadian provinces shows that the provinces with lower, flatter taxes are also the provinces that are experiencing the strongest economic growth;
  • What is needed to bring Saskatchewan and Manitoba into line with Canada’s best-performing provinces is a focus on high-quality spending and a commitment to cutting taxes whenever fiscal conditions permit. In particular, the political focus on inputs and spending-as-a-goal should be replaced with an emphasis on value for money, outcomes and the results of government spending.

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