The increase to the top personal income tax rate in British Columbia is discouraging entrepreneurs from starting a business in the province.
According to a study by public policy think-tank the Fraser Institute, the additional tax burden is detrimental to business creation, which is vital for economic growth and innovation.
Analysing 30 years of Canadian data from 1984 to 2015, the study found that increases to the top personal income tax rate reduce the number of new businesses started.
The study estimates that a 1% hike to the top personal income tax rate discourages 315 new businesses from starting over a four-year period. Using this benchmark, the 2.1% increase in B.C.'s top rate, to 16.8%, has, over the span of four years, already cost the province 662 businesses.
This approximation does not include the impact of federal government's 4% increase to the top federal personal income tax rate, which is expected to reduce entrepreneurship even further in B.C. and across Canada.
Fraser Institute fiscal studies director Charles Lammam said the recent tax hike impedes the growth of businesses and impacts the local economy.
“Policymakers 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," he said.
The number of businesses not created over a four-year period due to a 1% increase to the provincial top personal income tax rate (by province):
- Ontario 696
- Quebec 465
- British Columbia 315
- Alberta 275
- Saskatchewan 85
- Manitoba 74
- Nova Scotia 62
- New Brunswick 54
- Newfoundland and Labrador 40
- P.E.I. 14