The
Economic Freedom
Network

Provincial Economic Freedom in Canada 1981-1998

by Faisal Arman, Dexter Samida, and Michael Walker

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II: Takings and Discriminatory Taxation

II(a): Transfers and Subsidies as a Percentage of GDP

The ratio of transfers and subsidies to GDP indicates the degree to which various provinces use their budgets to engage in taking and transfer activities. Low levels of transfers and subsidies as a percentage of GDP generate high scores in this component.

Data Source: System of National Accounts, Provincial Economic Accounts, Annual Estimates, disk version (1961-1996), Statistics Canada, Catalogue No. 13-213.

Table II(a)-1: Transfers and Subsidies as a Percentage of GDP

	BC	AB	SK	MB	ON	QC	NB	NS	PEI	NF
1981	4.9	4.2	5.7	4.2	3.3	7.0	6.1	7.1	6.0	12.3
1985	5.1	7.2	7.5	5.0	3.5	8.0	6.2	5.0	6.9	12.8
1989	4.7	6.6	7.8	5.5	3.9	7.1	5.5	5.1	7.0	12.6
1993	6.2	5.5	7.4	6.3	5.6	8.5	6.5	5.2	6.7	13.3
1994	6.1	4.2	6.3	6.1	5.3	8.4	6.0	4.9	6.8	13.0
1995	6.1	3.7	5.8	5.2	5.0	8.3	5.8	4.9	6.2	12.5

Table II(a)-2:Rating Criteria

Rating	Transfers and Subsidies as Percentage of GDP
10	% <3.4%
9	3.4% - 4.2%
8	4.3% - 5.2%
7	5.3% - 6.2%
6	6.3% - 7.2%
5	7.3% - 8.2%
4	8.3% - 9.2%
3	9.3% - 10.2%
2	10.3% - 11.2%
1	11.3% - 12.2%
0	% >12.2%

Table II(a)-3:Index Ratings for Transfers and Subsidies

	1981	1985	1989	1993	1994	1995
Alberta	9	6	6	7	9	9
British Columbia	8	8	8	7	7	7
Manitoba	9	8	7	6	7	8
New Brunswick	7	7	7	6	7	7
Newfoundland	0	0	0	0	0	0
Nova Scotia	6	8	8	8	8	8
Ontario	10	9	9	7	7	8
Prince Edward Island	7	6	6	6	6	7
Quebec	6	5	6	4	4	4
Saskatchewan	7	5	5	5	6	7

II(b): Top Marginal Tax Rate and the Income Threshold at Which It Applies

This component measures the top marginal tax rate as well as the income threshold at which it applies. This is an attempt to gauge the distortionary nature of each province's tax system.

Data Source: "Finances of the Nation," Canadian Tax Foundation 1982, 1985, 1989, 1993, 1994, 1995, 1996, 1997 (entitled "The National Finances" before 1995).

Table II(b)-1:Top Marginal Tax Rate and the Income Threshold at Which It Applies

	BC	AB	SK	MB	ON	QC	NB	NS	PEI	NF
1982 Rate	50.46%	42.09%	53.42%	56.03%	50.32%	60.40%	52.87%	53.21%	51.85%	54.06%
Threshold	$53,377	$53,377	$53,377	$53,377	$53,377	$60,715	$53,377	$53,377	$53,337	$53,377
1985 Rate	53.47%	50.49%	54.93%	57.73%	52.02%	62.81%	55.42%	54.91%	53.55%	56.10%
Threshold	$62,161	$62,161	$62,161	$62,161	$62,161	$62,161	$62,161	$62,161	$62,161	$62,161
1989 Rate	45.53%	45.66%	49.08%	49.68%	47.18%	49.81%	48.00%	46.98%	48.78%	48.29%
Threshold	$70,330	$70,330	$70,330	$70,330	$84,917	$70,330	$70,330	$70,330	$94,223	$70,330
1993 Rate	54.20%	46.10%	51.90%	50.40%	50.70%	50.50%	50.70%	50.30%	50.30%	51.30%
Threshold	$79,326	$63,315	$63,315	$63,315	$82,908	$63,315	$95,295	$78,165	$92,655	$63,315
1994 Rate	54.20%	46.10%	51.90%	50.40%	53.30%	52.90%	51.40%	53.80%	50.30%	51.30%
Threshold	$79,406	$63,396	$63,396	$63,396	$63,396	$63,396	$93,034	$81,137	$92,734	$63,396
1995 Rate	54.20%	46.10%	51.90%	50.40%	53.30%	52.90%	51.40%	50.30%	50.30%	51.30%
Threshold	$79,447	$63,438	$63,438	$63,438	$63,438	$63,438	$93,071	$78,288	$92,777	$63,438
1996 Rate	54.20%	46.10%	51.90%	50.40%	52.90%	52.90%	51.40%	50.30%	50.30%	53.30%
Threshold	$78,207	$63,438	$63,438	$63,438	$63,438	$63,438	$93,071	$78,288	$92,777	$63,438

Table II(b)-2:Rating Criteria

Top Marginal Tax Rate	Income Threshold
	$50,000 - $74,999	$75,000 - $99,999	$100,000 and over
% < 42.2%	10	10	10
42.2% - 44.3%	9	9	10
44.4% - 46%	8	8	9
46.1% - 47.7%	7	7	8
47.8% - 49.4%	5	6	7
49.5% - 51.1%	4	5	6
51.2% - 52.8%	3	4	5
52.9% - 54.5%	2	3	4
54.6% - 56.2%	1	2	3
56.3% - 57.9%	0	1	2
% > 57.9%	0	0	1

Table: Index Ratings for Marginal Tax Rates
and Income Threshold

	1982	1985	1989	1993	1994	1995	1996
AB	10	4	8	7	7	7	7
BC	4	2	8	3	3	3	3
MB	1	0	4	4	4	4	4
NB	2	1	5	5	4	4	4
NF	2	1	5	3	3	3	2
NS	2	1	7	5	3	5	5
ON	4	3	7	5	2	2	2
PEI	3	2	6	5	5	5	5
QC	0	0	4	4	2	2	2
SK	2	1	5	3	3	3	3

II(c): Direct Corporate Taxes as a Percentage of Corporate Profits

This component was calculated by looking at direct taxes paid by corporations within each jurisdiction as a percentage of corporate profits. Although a marginal measure would be preferable, due to differences in the tax code there is no accurate marginal measure for cross-provincial comparisons.

Data Source: Provincial Economic Accounts 13-213, Statistics Canada.

Table II(c):Direct Taxes Paid by Corporations as a Percentage of Corporate Profits

	BC	AB	SK	MB	ON	QC	NB	NS	PEI	NF
1981	39.4	41.9	28.3	29.4	29.6	33.3	26.7	36.0	25.3	29.0
1985	31.4	43.6	25.8	24.0	27.5	25.9	26.8	36.8	21.9	24.6
1989	34.5	41.8	26.5	32.7	30.4	27.0	25.7	31.9	28.5	26.6
1993	47.2	33.2	25.9	38.3	31.1	39.0	38.7	34.2	30.0	28.6
1994	43.1	28.3	24.5	37.8	29.1	32.1	26.2	31.9	25.3	27.5
1995	44.1	30.6	22.9	39.7	29.5	33.2	21.7	31.3	25.5	25.4

Table II(c)-2:Rating Criteria

Rating	Direct Corporate Taxes as a Percentage of Corporate Profits
10	% <22%
9	22% - 24%
8	24% - 26%
7	26% - 28%
6	28% - 30%
5	30% - 32%
4	32% - 34%
3	34% - 36%
2	36% - 38%
1	38% - 40%
0	% >40%

Table II(c)-3:Index Rating for Corporate Taxes

	1981	1985	1989	1993	1994	1995
Alberta	0	0	0	4	6	5
British Columbia	1	5	3	0	0	0
Manitoba	6	8	4	1	2	1
New Brunswick	7	7	8	1	7	10
Newfoundland	6	8	7	6	7	8
Nova Scotia	2	2	5	3	5	5
Ontario	6	7	5	5	6	6
Prince Edward Island	8	10	6	6	8	8
Quebec	4	8	7	1	4	4
Saskatchewan	6	8	7	8	8	9

II(d): Provincial Sales Tax

This component of the index looked at the level of sales tax levied in each of the provinces.

Data Source: Finances of the Nation, Canadian Tax Foundation 1982, 1985, 1989, 1991, 1995, 1996, 1997
(entitled The National Finances before 1995).

Table II(d)-1:Provincial Sales Tax

	BC	AB	SK	MB	ON	QC	NB	NS	PEI	NF
1981	6%	nil	5%	5%	7%	8%.00	08%	08%	10%	11%
1985	6%	nil	5%	5%	7%	9%.00	11%	10%	10%	12%
1989	6%	nil	7%	7%	8%	9%.00	11%	10%	10%	12%
1991	6%	nil	7%	7%	8%	8%.00	11%	10%	10%	12%
1995	7%	nil	9%	7%	8%	6.50%	11%	11%	10%	12%
1996	7%	nil	9%	7%	8%	6.50%	11%	11%	10%	12%

Table II(d)-2:Index Criteria

Rating	Provincial Sales Tax
10	% < 2.1%
8	2.1% - 4.0%
6	4.1% - 6.0%
4	6.1% - 8.0%
2	8.1% - 10%
0	% > 10%

Table II(d)-3:Index Ratings for Provincial Sales Tax

	1981	1985	1989	1991	1995	1996
Alberta	10	10	10	10	10	10
British Columbia	6	6	6	6	4	4
Manitoba	6	6	4	4	4	4
New Brunswick	4	0	0	0	0	0
Newfoundland	0	0	0	0	0	0
Nova Scotia	4	2	2	2	0	0
Ontario	4	4	4	4	4	4
Prince Edward Island	2	2	2	2	2	2
Quebec	4	2	2	4	4	4
Saskatchewan	6	6	4	4	2	2

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Last Modified: Wednesday, October 20, 1999.