Saskatchewan’s two main political parties need to offer solutions to low productivity and tax reform appears to be an idea worth pitching.
Recently, Conservative Leader Pierre Poilievre committed to a “tax reform task force” to “lower taxes on work, hiring and making stuff.” He’s talking about productivity, a measurement of the value added by an hour of work. It’s closely related to how much citizens earn, and indicative of our living standards.
According to economist Trevor Tombe, between 2015 and 2023 Canadian productivity grew at a measly rate of 0.2 per cent per year. The Bank of Canada has described our present productivity and investment woes as a crisis, urging government to “break the glass.”
Many economists have weighed in on what should be done, from axing income taxes in favour of consumption taxes to simplifying the tax code. Most of these proposals have been aimed at the federal government, and rightly so given that federal policies contain significant tax and regulatory barriers.
The conversation less often had is what provinces can do. Consider a federal reform proposed by Jack Mintz in 2020. Mintz suggested that capital investments should be exempt from taxation, with corporate taxes only levied on distributed profits.
This proposal is revenue neutral, reduces distortions, and eliminates the need for distortionary corporate welfare. It also cuts Canada’s corporate METR (marginal effective tax rates), essentially the tax on new investment, by 3.7 points.
In this same research, Mintz laid out just how distortionary Saskatchewan’s tax system really is.
According to Statistics Canada, Saskatchewan’s telecommunications industry is 364 per cent more productive than forestry and logging, but Mintz’s research shows that the METR for Saskatchewan telecommunications is 193 per cent higher than that of forestry and logging.
The government is trying to pick winners, and failing miserably.
These sorts of distortions are devastating for productivity and competition. The gap between the industry with the highest METR in Saskatchewan and the lowest is 15.4 points. Mintz’s proposal reduces that gap by 36 per cent, but that gap is still 9.9 points.
Saskatchewan would still have the third highest METR in Canada, and the second most distortionary tax system.
The primary culprit is Saskatchewan’s retail sales tax, which contains its own tax preferences and adds significant upstream capital costs compared to value-added taxes in other provinces. To address this, Saskatchewan needs to adopt a harmonized sales tax, but a further lesson can be taken from Mintz’s proposal.
Saskatchewan has lost billions in wealth transferred to the pockets of foreign shareholders as opposed to reinvestment in the province.
The potash industry admits that its contribution to GDP in 2022 was $8.6 billion. More than half of an unearned windfall from a resource owned by the people of Saskatchewan went primarily to shareholders outside of Saskatchewan.
At the same time, the productivity of the potash sector in 2022 was 48 per cent lower than it was two decades before.
Mintz has proposed rent-based taxation for Saskatchewan’s potash industry to incentivize reinvestment while collecting fair returns for Saskatchewan, a concept maintained in his proposed changes to corporate tax for all industries.
In any case, enough research has been done on our present economic crisis and what must be done about it that Saskatchewan’s politicians should have no problem presenting credible solutions before the fall election.
It’s time for leadership, and time for those vying to be our province’s leaders to show us their plans for Saskatchewan’s economic future.
Ty Thiessen is a University of Saskatchewan student researching methods of government finance and debt reduction.
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