A new Fraser Institute report finds critical opportunity for Canada to reform its business taxation system-possibly making the nation more attractive for investment and thereby spurring economic growth. In fact, the new report points out that a more favorable tax structure could contribute meaningfully to the improvement in the living standard for Canadian workers.

Currently, the current business tax system taxes every profit earned by business companies due to its disincentive effect on investment into these essential investments in new plants, machinery, equipment, and research and development. Trevor Tombe, the author of “Boosting Canada’s Competitiveness by Reforming Business Taxation,” asserts that investment by businesses will continue dropping if such changes are not made now. He does argue, however that perhaps a necessary step towards the reversal of this crisis could be the need for a radical shift in the basic tax model of business.

Another possible reform recommendation is that the tax on a profit-spending framework must be dismantled, and applied only to profit disbursements, such as dividends, share buybacks, and bonuses, but exempt profit reinvestments from taxation. Thus, businesses will be encouraged to maximize their reinvestments instead of distributing them, enhancing productivity, economic growth, and eventually, living conditions in Canada.

It also underscores the need to further improve Canada‘s tax competitiveness around the world. Significantly, Estonia adopts a model whereby business earnings are only taxed when disbursed and not if reinvested in the company, and has consequent positioned itself often in top position as the best nation in terms of Tax Foundation’s ranking of Tax Competitiveness in the World. Canada on the other hand in 2005 ranked 24th of 38 countries assessed in the last year in terms of corporate tax attractiveness.

As Jake Fuss, director of fiscal studies at the Fraser Institute, emphasizes, the impetus of this reform is pressing – he argues that, from a policy perspective, making Canadian firms more attractive for investment should be of greatest concern to policymakers across the country. The opportunity opened up by tax reform to finally bring improved business investment to Canada is immensely promising for the country’s economic future.