VANCOUVER, BC—Alberta again ranks as having Canada’s best investment climate while Ontario continues to struggle, according to a new report released today by the Fraser Institute, Canada’s leading public policy think-tank.
“With Canada’s lowest corporate and personal income taxes, most flexible labour market, smallest government, and relatively low level of red tape, Alberta continues to offer an investment climate that is the most attractive nationwide,” said Charles Lammam, Fraser Institute senior policy analyst and co-author of the Canadian Provincial Investment Climate 2010 Report
Alberta topped the rankings with an overall score of 8.1 out of 10. Ontario, Canada’s largest province and once considered the country’s economic engine, ranked fifth with a score of 5.2.
“It’s highly troubling that Ontario remains relatively unattractive for capital investment. Although the provincial government has made a renewed commitment to lowering taxes on capital, it still has a long way to go to regain the top overall ranking it held in the early part of this decade,” Lammam said.
The Canadian Provincial Investment Climate 2010 Report
measures six components identified by Canadian investment managers and academic research as the most important contributors to investment climates: corporate income tax, fiscal prudence, personal income tax, transportation infrastructure, labour market regulation, and overall burden of regulation.
Saskatchewan ranked second overall with a score of 6.4. British Columbia was third with a score of 5.6 while New Brunswick scored 5.3, putting it fourth. Manitoba ranked sixth with a score of 5.0.
“The Western provinces, led by Alberta, have cemented their position as the best places to invest in Canada. The policies they have put in place should serve as an example to the rest of Canada on the actions they need to take to attract investment,” Lammam said.
Quebec scored 4.8 and ranked seventh. Newfoundland and Labrador (4.4) ranked eighth, Nova Scotia (4.3) ninth, and Prince Edward Island came in last, with a score of 2.7.
“Quebec, Canada’s second-largest province, has done little to improve its attractiveness for investment and its low overall score reflects that,” Lammam said.
Alberta ranks first on most indicators including corporate income taxes, personal income taxes, fiscal prudence, and labour market regulation. It ranks second on the overall burden of government regulations or “red tape.” But Alberta’s weak spot is on transportation infrastructure, where it scores 5.7 out of 10 and ranks seventh.
Ontario’s mediocre ranking is largely the result of poor performance on two components: corporate income taxes and fiscal prudence. The current government raised corporate taxes shortly after coming to power in 2003. Fortunately, it realized the destructive impact of that move and in 2009 changed course, announcing a phased-in tax reduction that will pay dividends for the province’s investment climate. However, lack of fiscal prudence, driven by runaway government spending and massive deficits, continues to be a risk to Ontario’s investment climate.
In Quebec, major areas that weaken the investment climate are inflexible labour laws, excessive red tape, and high personal income taxes. Unfortunately, the government has not taken steps to address these shortcomings. The ultimate penalty is borne by Quebecers through reduced prosperity.
New Brunswick is an interesting story in Atlantic Canada. While the province has low scores on fiscal prudence, government red tape, and labour market regulation, it has become the region’s shining star on corporate and personal income taxes, ranking third on each component. These high rankings result from a historic overhaul to New Brunswick’s personal and business tax regimes that improved the incentives for hard work, savings, investment, and entrepreneurship.
“In order to foster job creation and economic prosperity, provinces must improve their investment climate. Key areas for improvement include minimizing red tape, offering competitive tax rates, constraining government spending, providing adequate infrastructure, and ensuring flexible labour markets,” said Niels Veldhuis, Fraser Institute vice-president of Canadian policy research.
“Failure to embrace these kinds of policies means lower rates of job creation, high levels of unemployment, and slower income growth. It’s time for Ontario, Quebec, and Atlantic Canada to get on the fast track to economic success.”