A report by the Fraser Institute says Alberta’s personal income tax rate hike may prevent 1,374 new businesses from starting in the province.
“Recent tax hikes by the Alberta government are discouraging entrepreneurs from starting new businesses, which are vital for economic growth and prosperity and drive innovation,” said Charles Lammam, director of fiscal studies at the Fraser Institute, in a statement.
The institute’s report The Effects on Entrepreneurship of Increasing Provincial Top Personal Income Tax Rates in Canada, released on Tuesday, found that increases to the top personal income tax rate reduce the number of new businesses started.
“That’s because entrepreneurship is inherently risky and higher personal income taxes decrease the potential income (and reward) for entrepreneurs who are successful, reducing their incentive to start a new business,” said the Canadian public policy think-tank.
“For Alberta, the study estimates that, holding all else constant, a one percentage point increase to the top personal income tax rate prevents 275 new businesses from starting over a four-year period.
“Considering that the Alberta government in 2016 raised its top provincial rate five points to 15 per cent, over the same time span of four years, the province may lose out on 1,374 new businesses.”
The institute added that the estimate does not include the impact of the federal government’s four percentage point increase to the federal top personal income tax rate, which will reduce entrepreneurship even more in Alberta and across Canada.
“Policy-makers should be aware of the negative effects of higher personal income tax rates on entrepreneurial activity as Canadians risk losing out on job opportunities and economic prosperity,” said Lamman.
The report said that increases in top personal income tax rates have resulted in a significant loss to the Canadian economy, which has been experiencing a decline in entrepreneurship for a long time.
“In sum, the empirical results show that an increase in the top marginal income tax rate discourages entrepreneurship as measured by the business entry rate,” said the report.
Respected business writer Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald in various capacities, including 12 years as a senior business writer.