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If voters kill British Columbia's Harmonized Sales Tax (HST) in a June referendum, the province's economy will suffer in the long run. A rejection will spur the rebirth of the provincial retail sales tax, leading to steep increases in the marginal effective tax rates on capital and costs and a corresponding dip in investment and job creation. Should voters decide to keep the HST, BC will reduce the tax by two points over the next three years and raise the corporate income tax rate to bridge the revenue gap. This will also negatively impact corporate competitiveness, but since the government has indicated that the hike will be temporary, retaining the HST is the best option for BC's economy.

The purpose of this report is to provide cost of capital formulae for assessing the effects of taxation on the incentive to invest in oil and gas industries in Canada. The analysis is based on the assumption that businesses invest in capital until the after-tax rate of return on capital is equal to the tax-adjusted cost of capital. The cost of capital in absence of taxation is the inflation-adjusted cost of finance. The after-tax rate of return on capital is the annualized profit earned on a project net of the taxes paid by the businesses. For this purpose, we include corporate income, sales and other capital-related taxes as applied to oil and gas investments. For oil and gas taxation, it is necessary to account for royalties in a special way. Royalties are payment made by businesses for the right to extract oil and gas from land owned by the property holder. The land is owned by the province so the royalties are a rental payment for the benefit received from extracting the product from provincial lands. Thus, provincial royalty payments are a cost to oil and gas companies for using public property. However, since the provincial government is responsible for the royalty regime and could use taxes like the corporate income tax to extract revenue, one might think of royalties as part of the overall fiscal regime to raise revenue. In principle, one should subtract the rental benefit received from oil and gas businesses from taxes and royalty payments to assess the overall fiscal impact. This is impossible to do without measuring some explicit rental rate for use of provincial property. Further, royalty payments may distort economic decisions unlike a payment based on the economic rents earned on oil and gas projects. Instead, for comparability across jurisdictions, one might calculate the aggregate tax and royalty effective tax rates (such as between Alberta and Texas).

• The 2009 Ontario Budget measures, together with other recent tax changes, will have a profound impact on Ontario's competitiveness by lowering the tax burden on new business investment.• Within ten years, Ontario will benefit from: – increased capital investment of $47 billion; – increased annual incomes of up to 8.8%, or $29.4 billion; and – an estimated 591,000 net new jobs. This paper documents the impact of the 2009 Ontario Budget and other recent tax changes on capital investment, jobs, and incomes in the province. In the March 2009 Budget, Ontario announced it will harmonize its sales tax with the federal goods and services tax (GST) as well as reduce corporate and personal taxes. The Budget measures will have a profound impact on the willingness of business to invest in Ontario since corporate tax rate reductions and the adoption of the federal GST base would result in the virtual elimination of taxes on capital goods and business intermediate inputs once fully phased in.Since 1980, when I began modelling the impact of taxes on investment, this is the largest change ever seen in a single budget, leading to the sharpest reduction in the tax burden on capital investment in any one province. Coupled with federal reductions in corporate taxes and Ontario's already legislated elimination of all remaining capital taxes,1 Ontario will see its effective tax rate on new investments by medium and large businesses plummet from 33.6% in 2009 to 23.7% in 2010 and then to 18.5% by 2018. The province will then have an effective tax rate on non-resource investments that is similar to most other provinces, including Alberta, British Columbia, and Quebec. Ontario will also improve its international competitiveness dramatically with a lower tax burden on new investment compared with the average of 20 major industrialized and emerging economies. Small businesses will also benefit substantially from the 2009 Budget. The effective tax rate on small business investment will fall by more than half, from 28.6% to 13.3%, due to the one percentage point reduction in the corporate tax rate and sales tax harmonization. Sales tax harmonization will have a large impact since the Ontario retail sales tax especially hurts investment in machinery that Ontario's small businesses use intensively.Within ten years, the lower tax burden on investment will lead to increases in capital investment of $47 billion and in annual incomes of between 4.4% and 8.8%, and to the creation of an estimated 591,000 net new jobs.

Saskatchewan — and by extension, Canada — is the largest producer of potash in the world, accounting for over 30 per cent of global production. Perhaps the good fortune of having an abundance of such a valuable natural resource has engendered an approach whereby tax policy has not been considered a top priority. That would at least be one explanation for the alarmingly inefficient and uncompetitive potash regime that currently exists in Saskatchewan. New Brunswick's potash-taxation regime is at least somewhat better designed than Saskatchewan's, although it hardly stands as a model of efficiency. In both cases, poorly designed policies are hindering the provinces' economic potential and, in turn, Canada's. Put bluntly, when compared against its international peers, Saskatchewan's potash-tax regime is not only the most complex and inefficient, it can also be the least competitive since its tax incentives conditioned on dated production levels and investment sizes cannot be used in perpetuity. Whereas its international peers tend to tax all potash investment projects equally, the marginal effective tax and royalty rates (METRR) on potash investment projects in Saskatchewan, either itemized or aggregated, are so widely varied that it is possible to calculate a METRR gap between two different projects as much as 48 percentage points. The convoluted nature of Saskatchewan's regime benefits no one — not producers, investors, or the provincial government, which is left without any revenue certainty from its most significant natural resource. In fact, in recent years, where potash production and sales value rebounded substantially in Saskatchewan from 2009 levels, excessive tax allowances resulted in the province incurring three years of tax revenue losses from its potash production tax. New Brunswick's potash-taxation regime is less complex than Saskatchewan's, but it is not efficient. The province recently introduced a price-sensitive royalty-rate structure that imposes a higher degree of taxation on risky projects. Greater efficiency can be achieved by using a royalty system that is mainly rent based. Neither Saskatchewan nor New Brunswick needs to endure such a muddled and counter-productive approach to potash taxation. Simple solutions exist that would make both regimes far more efficient and competitive internationally. Both provinces should convert potash levies to an essentially rent-based royalty regime that ultimately taxes only revenues net of all the capital spending and operational costs. Any existing production- and sales-based ad valorem levies could be combined into a single royalty based on sales value, net of transportation and distribution costs and credited against the rent-based tax, thereby enabling, a steady revenue source for the government. Both unused capital and operational costs (deductible from the taxable rent) and sales-based royalty should be carried forward at the government's long-term bond rate.

As the federal and provincial governments look to create jobs and attract business investment, productivity-enhanced business tax structures are in high order. Tax structures that combine internationally competitive tax rates on neutral tax bases foster long-term economic growth and generate sustainable tax revenue. This report examines tax policy in Canada over the past few years, specifically its impact on capital investment, labour and the cost of doing business across provinces and industries. Suggestions for tax reform are provided.