A Transformational Tax Policy for Atlantic Canada: Corporate Income Tax Relief

— Published on September 12, 2024

Economists have repeatedly identified the provincial tax regimes in Canada’s four Atlantic provinces as a key impediment to economic growth in the region.
The region’s policymakers should consider not small or incremental changes to their provincial tax systems, but transformational changes.
This bulletin examines one such reform strategy: reducing the corporate income tax (CIT) rate in all four Atlantic provinces to match the lowest current level in Canada, Alberta’s 8 percent.
This reform would greatly improve the business taxation competitiveness of the Atlantic provinces relative to the rest of Canada as well as nearby American states. Further, it would encourage economic growth.
The benefits of substantial CIT rate reductions could be realized with small or negligible losses of government revenue. If we assume that businesses would make no changes at all in their economic behaviour following a reduced CIT, provincial revenue would decrease by between 1.6 and 2.2 percent. But if we take expected behavioural effects into account, recent literature shows that the revenue implications for provincial governments would be even smaller.
CIT reductions would produce benefits for workers and shareholders. Recent evidence shows that CIT reductions would likely lead to increased employment and higher wages relative to the status quo.