These are the tax changes Mark Carney should make to boost the economy

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On Tuesday, Mark Carney and his Finance Minister Francois-Philippe Champagne will have the opportunity to use their budget to unleash Canada's economy through the tax system. They could take simple measures, both big and small, that could support Canada's economy at a time when it is desperately needed.

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The best part is that it won't require new government spending or new government programs, just tax cuts and changes. Former Liberal Prime Minister Jean Chrétien loved to use tax cuts to stimulate the economy, and Carney should follow suit.

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Here are five tax changes the government could and should make: but probably won't.

Reduce personal income tax

These days, when people talk about personal income tax cuts, they mostly talk about cuts at lower income levels through a rate cut or an increase in the basic personal exemption. This is all well and good and the government should look at these ideas, but right now they should cut taxes on the rich.

We spent years under governments – federal and provincial – that espoused the “tax the rich” mantra, and it didn't help us; it hurt us. To attract the best talent, which we must do, we need to ensure that high performers and high earners, including the entrepreneurial class, have a reason to stay in Canada.

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Right now, the income tax cap starts at $253,414 per year. A person earning the same amount living in Toronto would pay $95,228 in tax, or 37.73% of their income. Compare this to a person living in California, which is considered a high-tax jurisdiction in the United States, where a person earning the same amount would pay $78,778, or 31% of their income.

We tax rich and successful people and while this may be good policy, it is terrible for our economic future. Increase the threshold for higher tax brackets and lower tax rates.

Corporate income tax

When people don't demand the rich pay their fair share, they demand companies pay more, which actually means you end up paying more taxes. Canada used to have a tax advantage to attract corporate investment. We don't do this anymore. We lost it to the United States.

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In the US, the federal government levies a flat rate of 21% on corporate profits, and the average combined state and federal rate is 25.8%, although some states have no corporate tax and some charge a higher rate.

In Canada, the federal corporate rate is 15%, and the combined federal and provincial rate ranges from a low of 23% in Alberta to a high of 30% in PEI, and in Ontario it is 26.5%. This is a competitive disadvantage for Canada, and while most of the improvements need to come at the provincial level, the feds could also cut back.

When Chrétien cut corporate taxes in the late 1990s and early 2000s, government income tax revenues rose. Let's repeat this.

Zero capital gains when reinvesting in Canada

It was an idea that Conservative leader Pierre Poilievre ran in the last elections. If you sell, activate and reinvest it in Canada, you pay zero capital gains tax on your profits.

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He said it would be like adding rocket fuel to the economy, and he's right. We need more investment in Canada in companies big and small, why not encourage Canadians to provide that investment.

Eliminate bank income tax

Banking and insurance are two of Canada's most successful major industries, so why punish them? Starting in 2021, the Trudeau government added an additional 1.5% income tax to bank and insurance company income for taxable income exceeding $1 billion, but in 2022 it lowered that threshold to income exceeding $100 million.

The only thing this does is take some of our biggest companies out of the country.

Eliminate the alcohol escalator tax

Since 2017, the federal government has increased the alcohol excise tax every April 1st. This tax increases costs for consumers and makes Canadian businesses less competitive.

The Canadian Chamber of Commerce, Restaurants Canada and, of course, brewers, wineries and distillers across the country have long called for an end to this annual increase.

It should.

Canada needs to become more competitive in the face of a changing world in which the old rules that made Canada an attractive place to start a business no longer apply. The government needs to take bold action, but unfortunately I doubt they will.

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