Thank you, and thank you very much for inviting me to speak to you today.
I'm going to talk about how the Canadian tax system compares to tax systems across the OECD. In my presentation I will refer to some of the charts that I believe have been provided to you.
First of all, there is a chart that reports tax revenues as a percentage of GDP. As Professor Brooks just indicated, this shows that in Canada the tax revenue as a percentage of GDP is somewhat below the OECD average. And I should say that these are tax revenues for all levels of government: federal, provincial, and local taxes.
If I move on to the tax mix, Canada is a country that, compared to most OECD countries, raises a rather high proportion of revenue from personal income tax, a rather small proportion of revenue from social security contributions, and a slightly lower than average—but not much—share from taxes on goods and services.
I think the main interest you have is in the actual tax rates, and so I'll move on and talk about trends in the main or top corporate tax rate that there have been over the past 25 years or so.
What we can see is that there have been very dramatic reductions in corporate tax rates across the OECD over the last 25 years, and in fact I must say that these cuts are continuing. For example, this chart shows, as the latest figure, the corporate tax rates for 2007, but at the beginning of 2008 Germany reduced its corporate tax rate from about 38% or 39% to just below 30%. So in fact, if we take that change into account, Canada now has the third highest corporate tax rate within the OECD.
On the next page, there is a comparison of corporate tax rates in the form of a table. The point this table makes is that large-sized OECD countries seem to be able to sustain a higher corporate tax rate than small-sized OECD countries, and that not only do small-sized OECD countries have lower corporate tax rates, but they've been cutting them faster. We would regard Canada as a medium-sized OECD country, and you can see that in 2007 the average for those medium-sized OECD countries was around 30%, considerably lower than the current Canadian corporate tax rate.
Another issue that is of concern to most countries is the tax rate on dividend income. So the next chart shows, for the years 2000 and 2007, the overall tax rate on dividend income, taking account of both the tax paid at the corporate level in corporate tax and the personal income tax that's levied on dividends. You can see here that once again almost all countries, or all countries in the chart—almost all—have shown a considerable reduction in the taxation of dividend income. Canada has certainly taken part in that cut, but you can see that Canada is above the OECD average; it was in 2000 and it still was in 2007. Again, here, Canada has a comparatively high tax rate.
One other aspect of the corporate tax system is the incentives that are given to research and development, and the next chart shows how Canada compares to other OECD countries. What you can see from the solid black bars is that Canada offers fairly generous, but not extremely generous, incentives towards R and D for large firms. But the little diamond shape above that shows that Canada has an unusually high R and D tax incentive for small and medium-sized enterprises, about the third largest in the OECD.
Moving on to looking at the taxation of labour income, we see that Canada, like other OECD countries, has cut its top personal income tax rate quite significantly over the past 25 years or so. Canada lies more or less in the middle of OECD countries in its current top statutory personal income tax rate. However, a measure that we use more often to look at the taxation of labour income is something that we call the tax wedge. That's something that measures the difference between the cost to employers of employing a worker and the amount that the worker actually takes home to spend.
What you can see in the chart is that Canada is substantially below the OECD average. We've split this bar up into personal income tax, employee social security contributions, and employer social security contributions, and the chart shows that it is not because Canada has a particularly low rate of personal income tax that accounts for its low overall tax burden on labour, but because its social security contributions are substantially lower than average in the OECD.
This chart looks at the situation for a single worker who's earning the average wage. The next chart shows that for that same worker, almost all OECD countries have reduced the tax wedge between 2000 and 2006, and Canada has been part of that trend.
The next chart shows the tax wedge for lone parents. Typically, lone parents don't earn as much as the average worker, so we've looked a lone parent earning about two-thirds of the average wage. You can see that Canada applies a very low level of overall taxation to the wage income of lone parents, about the same amount as the United States, and significantly less than almost all other OECD countries. Only New Zealand and Ireland have substantially greater preferences for lone parents at that income level. They in fact have a negative tax.
The final chart on labour income shows a very simple measure of the progressivity of the tax burden on labour income. You can see that the Canadian tax system has somewhat below average progressivity, and that progressivity fell between 2000 and 2006. However, I should say that I believe the figures would show an increase in progressivity if we looked at 2007, because of the changes in your personal income tax system that were introduced in 2007.
Let me finally move to the comparison of taxes on consumption.
Canada, like all but one of the OECD countries, has a value-added tax that you call a general sales tax. The exception is the United States, of course. The black bar shows the standard rate of your general sales tax in 2007. I should clarify here that the federal rate is shown, not the federal-plus-provincial rate, but the revenue we show is both the federal and provincial revenues from value-added tax or general sales tax in Canada. You can see here that Canada raises a relatively small proportion of its income from GST.
The final chart shows a comparison of environmentally related taxes. In most countries these are primarily taxes on motor vehicles and motor fuels, but there are a number of other more minor taxes as well. You can see that Canada falls very much in the group of countries that do not use environmentally related taxes very much; it's much more on a North American model, with rates similar to those of Mexico, somewhat higher than those in the United States, and substantially lower than those of most European countries.
That's the end of my presentation. Thank you very much for your attention. I'll be very happy to answer questions.