Workers will bear the brunt of the Liberal government’s corporate tax hike



Former United States President Barack Obama popularized the term “teaching moment” when it is possible to provide the public with information about important collective issues. Canada’s recent federal budget provides such an opportunity with respect to the corporate income tax burden.

Specifically, Budget 2022 introduced Canada’s Recovery Dividend, which imposes a one-time 15% tax on banks and life insurance companies with profits over $1 billion. It also permanently raised the corporate income tax rate for banks and life insurance companies from 15.0 to 16.5 percent on profits over $100 million.

Together, these two measures are projected to raise $6.1 billion over the next five years, with approximately $445 million projected on an ongoing basis, assuming the “one-time” tax remains in fact a one-time tax – the taxes” temporary” often remain permanent. In the budget, the government said these two measures “will ensure that these major financial institutions help support Canada’s broader recovery.” Language is really important. The government has hinted that the institutions will pay these taxes.

But of course, a piece of paper cannot pay a tax. People pay taxes. So, one way or another, the shareholders, workers and/or customers will pay the cost of these higher taxes, not the “big financial institutions”. It is simply practical and politically acceptable for the government to characterize these higher taxes as being imposed on banks and life insurance companies.

According to a study by economists Ken McKenzie and Ergete Ferede in 2017, which calculated the impact of the Alberta government’s decision to raise the corporate tax rate by two percentage points in 2015, a significant portion of the Corporate tax burden shifts to workers through reduced wages. The results of the study estimated that the income of an average two-earner Alberta household decreased by about $830 per year. Similar results have been found in other studies in Canada and the United States, showing that workers ultimately bear much of the corporate income tax burden.

For this reason, when governments reduce corporate taxes, workers are likely to benefit from higher wage growth. After the Tax Cuts and Jobs Act (2017) reduced the US federal corporate income tax rate from 35% to 21%, one study estimated that the tax cut would raise wages by 1.5 % for workers and 339,000 additional full-time jobs. Another study found that wage growth for American workers fell from an average of 2.4% in 2016 and 2017 to 3.8% in October 2019 as a result of the tax cut.

But suppose that the burden of these taxes really falls on the shareholders of banks and life insurance companies. The problem is that the owners are largely us, average Canadian workers.

The Canada Pension Plan, to which all workers (outside Quebec) are required to contribute, has investments (as of March 2022) in all major banks and many insurance companies. Similarly, look at almost any mutual fund or exchange-traded fund that includes Canadian stocks and you’ll likely find major Canadian banks and, to a lesser extent, life insurance companies representing the top holdings. For example, among the top 10 mutual fund companies in the country, the major Canadian banks represent between three and five of the top 10 Canadian equity fund holdings.

Simply put, the burden of Ottawa’s new tax increase on banks and life insurance companies falls on the average working Canadian who has invested in these companies (directly or indirectly through the CPP) and employees of the companies concerned.

The opinions expressed in this article are the opinions of the author and do not necessarily reflect the opinions of The Epoch Times.


Jason Clemens is Executive Vice President of the Fraser Institute and President of the Fraser Institute Foundation.

Jake Fuss


Jake Fuss is a senior economist at the Fraser Institute.


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