In Ontario, hard work doesn’t pay

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Appeared in the Toronto Sun, June 8, 2016

If there was ever a statistic that confirmed Ontario is no longer a place to prosper, consider that average incomes in Ontario (after taxes) have slid from being 20 per cent higher than the rest of Canada to now being materially below it.

Good opportunities and high incomes in Ontario used to be a beacon for immigrants and people from other provinces. However, over the past 12 years there has been a continuous net exodus of Ontarians to other provinces. Today, only 38 per cent of new immigrants to Canada choose Ontario, down from 60 per cent just over a decade ago.

The root of Ontario’s decline can be found in a decade of failed government policies, particularly growth-killing tax increases.

This year the average Ontario family will pay more than $46,000 in taxes—42.5 per cent of the $108,600 the average Ontario family will earn.

While Ontarians have faced a host of tax increases, none have been more damaging than the increases in personal income taxes on high-skilled, educated workers—entrepreneurs, business professionals, engineers, lawyers and doctors.

Consider that Ontario’s top personal income tax rate (federal and provincial combined) is now 53.5 per cent. If Ontario were a country, its top tax rate would rank as the sixth highest among 34 industrialized countries and second highest among G7 countries, behind only France.

But that’s just personal income taxes. When the 13 per cent HST and other taxes are added, the total tax rate on additional income for many professionals, entrepreneurs and skilled workers is more than 70 per cent!

When 70 cents of every additional dollar a family earns and consumes goes to taxes, hard work and entrepreneurial risk-taking simply don’t pay.

To understand why, think of the fines imposed on people who drive above the speed limit. The more you speed above the limit, the greater the fine. We have these progressive fines because we want to discourage fast driving. While the intent of tax rates that increase rapidly as Ontarians earn more income is not to stop people from working and being more successful, a large body of research proves they have that very effect.

This is something leaders across the political spectrum used to understand.
Former Liberal Prime Minister Paul Martin understood: “Lower personal taxes would also provide greater rewards and incentives for middle- and high-income Canadians to work, save and invest.”

Former Conservative Prime Minister Stephen Harper understood: "Canada needs lower personal income tax rates to encourage more Canadians to realize their full potential.”

Former Federal NDP Leader Thomas Mulcair understood: “Look at a province like New Brunswick. They will have a tax rate of 58.75 per cent… How is New Brunswick going to be able to attract and retain top level medical doctors when they’re going to be told, Oh, by the way, our tax rate is now going to be close to 60 per cent?”

Improving incentives to work hard, invest and take entrepreneurial risks is not a partisan issue, it’s simply good economic policy.

If Premier Wynne’s government wants to re-establish Ontario as a place to prosper, improving incentives through tax reductions would be a good place to start.

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