In eight of ten provinces, the top combined federal and provincial income tax rate is now above 50 per cent. A doctor taking extra shifts, an engineer weighing a promotion or a business owner deciding whether to expand all keep less than half of each additional dollar. As Jake Fuss and Jason Clemens point out for the Fraser Institute, that is the result of a run of tax increases over the past fifteen years. What is surprising is not that the increases happened. It is that the governments elected to fix them have mostly left them in place.
Ontario was first. Dalton McGuinty’s Liberals raised top rates in 2012 and 2013 to close the deficit, and promised to repeal them by 2017-18. They never did. With Ontario’s surtax on top, the province’s top rate is 20.53 per cent, and the combined rate is 53.53 per cent. Doug Ford’s Progressive Conservatives spent years attacking Liberal tax hikes and have now been in power since 2018 without touching these ones. Federally, the Trudeau government added a new top bracket of 33 per cent in 2016. The Carney government has trimmed the lowest federal rate, but the top bracket is still there with no sign of moving.
Alberta’s story will be familiar to readers here. The province ran a single 10 per cent rate until 2015, when the NDP added new brackets above $125,000 and raised the top rate to 15 per cent, a 50 per cent increase. The UCP has since cut the bottom rate, which is worth something, but it has kept the NDP’s upper brackets almost exactly as they were. Alberta’s flat tax was once one of the province’s real competitive advantages for attracting professionals and business owners, and it is gone. In B.C., the NDP raised the top rate from 14.7 to 20.5 per cent in 2020 and increased the lowest rate this year. The new Conservative government campaigned against both and has not yet committed to reversing either.
High marginal rates matter more than their share of revenue suggests. They shape decisions at exactly the point where growth happens: whether to take on more work, invest, hire, or move to a jurisdiction that lets you keep more of what you earn. The people facing the top rates are often the most mobile people in the economy. Canada spent roughly two decades, from the mid-1990s to the early 2010s, cutting spending, balancing budgets and keeping taxes competitive, and it worked. The decade since has been one of weak productivity and stagnating living standards.
None of this is easy to reverse while deficits are still running, which is the usual excuse. But the “temporary” Ontario increases were supposed to end once the deficit closed, and that was more than a decade ago. A government that says it believes in competitive taxes should be able to name a date to bring top rates back below 50 per cent. If reform-minded governments will not, these higher rates are simply the new normal, and Canada will keep paying for them in the kind of growth it does not get.
