OTTAWA — A new essay from the Fraser Institute, an independent think-tank, suggests lower taxes on business, capital gains and personal income could pave the way for a four-day work week and higher productivity.
“Some types of taxes do more damage to the economy than others, so policymakers should move away from the most damaging taxes to help improve economic and productivity growth and increase the possibility of a four-day work week in Canada,” said Jake Fuss, senior economist at the Fraser Institute and co-author of the essay titled Increasing Productivity Through Tax Reform.
Fuss’s essay states high rates of personal income taxes reduce one’s take-home pay which can decrease someone’s will to work more, save and invest. Fuss argued Canada’s relatively high personal income tax rates means it is at a competitive disadvantage in encouraging, attracting and retaining high-skilled workers and entrepreneurs.
On the business side, higher taxes make labour, equipment and materials more expensive, creating less incentive to take risks, invest or expand.
The essay states of 36 Organisation for Economic Co-operation and Development (OECD) countries, Canada has the 10th highest rates for business taxes at 26.2 per cent. This is higher than the U.S., Sweden and Denmark.
Fuss also argued that capital gains taxes can stunt economic growth by encouraging Canadians to hold on to investments to avoid taxes rather than selling to reinvest elsewhere.
“By lowering tax rates on personal and business income, governments would encourage and incentivize the very things we need more of — investment and entrepreneurship, which lay the foundations for a four-day work week through improved productivity,” said Alex Whalen, Fraser Institute policy analyst and the paper’s co-author.
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