Opinion: Tax reform badly needed to help fix Canada's productivity problem

financialpost.com:

By Duncan Munn and Alexandre Laurin

The decline of Canada’s labour productivity is making headlines across the country and raising concerns about the country’s economic prosperity. In real terms, per capita GDP has been stagnant since 2017. As University of Alberta economist Trevor Tombe has pointed out, Ontario’s output per capita is now on par with Alabama’s. More than ever, Canada needs tax reform to foster economic growth.

Lack of investment is not the sole explanation for our disappointing productivity performance but it is almost certainly a major contributor. The stock of business capital per worker has been on a declining trend since 2015. Canada fares very poorly compared to its neighbour: each U.S. worker, on average, benefits from almost twice as much new business investment per year than the average Canadian worker. To reverse this trend and speed up economic growth, we need policies that tackle root causes. Tax reform is key.

All taxes distort economic activity by altering the relative prices of capital, labour and goods. But not all taxes distort equally. Some reduce productivity and economic efficiency much more than others. By shifting away from more distortionary taxes, like those on income, to less distortionary ones, like those on consumption, we can enhance the incentives we provide for economic growth.

Canada is a high-tax country relative to our largest trading partner — the burden of taxes is almost seven per cent of GDP higher in Canada than in the U.S. That creates enormous competitive pressure. We also rely more heavily on taxing incomes, both personal and corporate, than our peers do, including the U.S. That over-reliance on income taxes is costly. Entrepreneurs and innovators take on less