33
Among OECD countries Canada’s METR was third highest, after that of Germany and
the United States21 (Chart 10).
Chart 10: Effective Tax Rate on Capital in Selected OECD
Source: Mintz, Jack M.(2006) The 2006 Tax Competitiveness Report: Proposals for Pro-Growth Tax Reform, C.D. Howe Institute
Commentary 239, P. 12.
A key reason why our METR is so high is because five provinces (Ontario,
British Columbia, Prince Edward Island, Saskatchewan, and Manitoba) apply their retail
or provincial sales tax (PST) to the purchase of capital goods such as machinery and
equipment, including ICT goods. Because of this tax policy, these five provinces have
much higher METRs than the other provinces (Chart 11).22 The highest METR in Canada
is in Saskatchewan at 38.9 per cent (in 2010), followed by Ontario (37.1 per cent), British
Columbia (34.4 per cent), Manitoba (33.5 per cent), and Prince Edward Island (30.9 per
cent).
21 It is important to note that the METR has been falling in Canada in recent years, in contrast to an increase
in the United States. Consequently, our past poor M&E investment performance relative to the United
States likely reflected the METR gap. But the higher US METR in 2006 means that this variable is not a
factor that dampens investment in Canada relative to the United States, although it may dampen investment
relative to countries with a lower METR.
22 Finance Canada estimates that in 2010 for all sectors excluding resources, financial services and R&D
assets, sales tax net of provincial tax credits will account for 12.4 percentage points of the provincial
METR in Prince Edward Island, Ontario 8.8 points, Saskatchewan 8.6 points, British Columbia 7.7 points,
Manitoba 7.1 points and Quebec 0.2 points. At the national level, sales tax net of provincial sales tax
credits accounted for 5.4 per cent of the estimated METR of 32.5 points, that is one sixth. The sales tax rate
is projected to be 7 per cent in Saskatchewan, British Columbia and Manitoba, 8 per cent in Ontario, and
10.0 per cent in Prince Edward Island.