VANCOUVER, British Columbia, July 10, 2018 (GLOBE NEWSWIRE) — The Horgan government’s recent increase to British Columbia’s top personal income tax rate may be preventing 662 new businesses from starting in the province, finds a new study released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.
“Recent tax hikes by the B.C. government are discouraging entrepreneurs from starting new businesses, which are vital for economic growth and prosperity and drive innovation,” said Charles Lammam, director of fiscal studies at the Fraser Institute.
Using 30 years of Canadian data from 1984 to 2015, the study, titled The Effects on Entrepreneurship of Increasing Provincial Top Personal Income Tax Rates in Canada, finds that increases to the top personal income tax rate reduce the number of new businesses started.
That’s because entrepreneurship is inherently risky and higher personal income taxes decrease the potential income (and reward) for entrepreneurs who are successful, reducing their incentive to start a new business.
For B.C., the study estimates that, holding all else constant, a one percentage point increase to the top personal income tax rate prevents 315 new businesses from starting over a four-year period.
Considering that earlier this year the B.C. government raised its top provincial rate 2.1 points to 16.8 per cent, over the same time span of four years, the province may lose out on 662 new businesses.
Crucially, this estimate does not include the impact of the federal government’s four percentage point increase to the federal top personal income tax rate, which will reduce entrepreneurship even further in B.C. and across Canada.
“Policymakers should be aware of the negative effects of higher personal income tax rates on entrepreneurial activity as Canadians risk losing out on job opportunities and economic prosperity,” Lammam said.
The number of businesses not created over a four-year period due to a one percentage point increase to the provincial top personal income tax rate (by province):
|Newfoundland and Labrador||40|
Charles Lammam, Director, Fiscal Studies
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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries. Its mission is to improve the quality of life for Canadians, their families and future generations by studying, measuring and broadly communicating the effects of government policies, entrepreneurship and choice on their well-being. To protect the Institute’s independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org