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Quebec companies most heavily taxed in Canada, U.S.

Ontario is second

Alexis Gravel/Flickr

Quebec companies are by far the most heavily taxed in Canada and the United States, even after accounting for generous financial assistance from the province, according to a new University of Montreal business school study.

The HEC Centre for Productivity and Prosperity’s 2012 report said Wednesday that Quebec companies paid 26 per cent more in taxes than the Canadian average and face almost double the tax burden of U.S. companies.

Taxes represented 5.1 per cent of the gross output of Quebec businesses, compared with 4.1 per cent for Canada and 2.9 per cent for the United States, according to a Statistics Canada survey of 2008 data.

Ontario was the second least competitive province in terms of taxes at four per cent of gross output, followed by Alberta (3.9), B.C. (3.8), Nova Scotia (3.7), Manitoba (3.7), Newfoundland and Labrador (3.4), P.E.I. (3.1), Saskatchewan (3.0), and New Brunswick (2.6).

Payroll taxes were mainly responsible for the higher tax burden. They represented 1.1 per cent of the gross output or 22 per cent of taxes paid by Quebec business.

That compared with 0.4 per cent of output or 10 per cent of taxes paid in Canada as a whole and 12 per cent for Ontario. The United States and many Canadian provinces don’t have payroll taxes.

The study said these taxes hurt employees and companies alike because they are applied whether the employer is generating profits or recording losses.

Although Quebec’s taxes are the highest in North America aside from Mexico, they are lower than several European countries. Quebec received $114 billion of total taxes in 2009 or 37.4 per cent of its GDP. That was higher than the 32 per cent recorded by Canada, but less than Denmark, Sweden, Norway and Finland, which surpassed 40 per cent.

Quebec companies faced a higher tax burden even after subtracting billions of dollars in government assistance. Net taxes paid represented 3.6 per cent of gross output, or about $17 billion. That’s slightly higher than Ontario and Alberta and the Canadian average of 3.4 per cent.

Centre director Robert Gagne said the Quebec model of taxing companies heavily and then redistributing it to achieve economic, social, cultural and other objectives hasn’t been very effective since the province’s economic performance has been “rather disappointing” over the last 30 years.

“Considering that governments all over the world have been striving to lighten the tax burden to attract or retain companies and capital, one has to wonder whether Quebec is using the right strategies to increase its standard of living,” he said in a news release.

The study pointed to a 2004 OECD report which suggested that government assistance to businesses carries substantial economic risks if it distorts competition or is targeted towards firms that are less efficient or produce lower quality goods.

“It seems quite clear that reducing the business tax burden generally (in particular payroll taxes), and paying for it by cutting the amount of government assistance for businesses, would benefit all businesses in Quebec and could foster productivity growth.”

—Ross Marowits

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