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Can Canada compete?

Mark Milke: Whether we want to acknowledge it or not, our relatively high cost of living, housing, and taxes make a difference.
The costs are sky high, too.

A few years back in Dallas, I had a revealing chat with an Uber driver. The conversation gave me some insight into why certain American states were prospering vis-à-vis others.

He was only a part-time Uber driver, with a full-time job as a manager at Greyhound. (Yes, that bus line still operates in the United States.) I asked if he had grown up in Dallas; he had only moved there a few years previous, from Philadelphia.

As to why he moved, the driver mentioned he had five children, and that Philadelphia was expensive for housing and much else, so he and his wife chose Dallas. He felt blessed and lucky to be able to buy into the Dallas housing market, to find a five-bedroom home.

When I asked how much he paid, he replied—wait for it, Canadians—$182,000. That was a few years previous, and since then the value of his five-bedroom Dallas home had climbed to what he thought was the astonishingly high price of $217,000.

That conversation took place in 2017. Four years later, I assume this gentleman’s home might be worth even more, given what has been a generally robust American economy pre- and post-Covid, and then rock-bottom low interest rates in the past year.

I note the example of reasonable housing prices in Dallas, a major city with a metro-area population of 6.4 million, not only because of the obvious contrast with major Canadian cities, but because of what such reasonable housing costs also mean for attracting business investment: Sky-high home prices make it that much harder.

Consider for a moment average home prices in Canada, care of the CMHC, from its May report. The CMHC forecasts average MLS prices (averaged across all dwellings) as follows: metro Vancouver: $1.129 million; Victoria: $848,802; greater Toronto: $1.087 million; greater Hamilton: $820,000; Windsor: $503,000; Halifax: $440,000; or the Prairie cities of Calgary: $475,600; Winnipeg: $337,800, and Saskatoon: $334,040.

Note that even the supposedly blue-collar worker cities such as Hamilton are now expensive.  At $820,000, Hamilton is more expensive than Palm Springs, where the average price of US $620,000 equates to about CAN $750,000.

Need I mention that unlike Hamilton, in Palm Springs you get no snow, palm trees, and perhaps a pool for $750,000?

Canada’s Prairie cities are more affordable, but here’s what’s not so attractive for Canada for investment and the cost of living: Our tax levels, in addition to high housing costs.

The Wall Street Journal recently noted that just five U.S. states—four in the southwest: Arizona, New Mexico, Texas and Oklahoma, plus Nevada – accounted for 30% of the growth in manufacturing jobs in the United States in the past three years. Those five states added 100,000 manufacturing jobs over three years.

And why were manufacturers flocking to those states? Low housing prices for prospective staff and lower taxes, which is drawing even California firms to the southwest states and Nevada.

Consider Texas as just one example of a state where still-reasonable housing prices and tax levels combine to make Canada very unattractive for investment by comparison.

In Texas, there is no state corporate tax but instead a “gross receipts” tax (and it’s the same in Nevada). Gross receipt taxes are not directly comparable to corporate taxes but for the other noted states, here’s the top corporate rate comparison: Arizona (4.9%), New Mexico (5.9%), and Oklahoma 6.00%).

And here’s the top personal state income tax rates in those five states: Arizona (2.59%), New Mexico (5.9%), Texas (0%) Oklahoma (5.0%), and Nevada (0%).

In Canada, let’s consider top corporate and personal income tax rates in just two provinces.

British Columbia’s top corporate provincial income tax rate is 12% with a top provincial income tax rate of 20.5%. Alberta has the lowest corporate tax rate in Canada at 8.0%. Its top provincial income tax rate is 15%.

British Columbians might respond that Texas is not British Columbia. That skips over the reality that the American southwest is competitive for investment whether BC politicians like it or not.

But let’s compare BC with California. California’s top state corporate tax rate is 8.84% compared with BC’s 12% rate. California’s top state personal income tax rate is 13.3% compared to BC’s 20.5%. California’s 13.3% rate kicks in only at $1 million (about $1.2 million on Canadian dollars); BC’s 20.5% rate starts at $222,421.

So what can be done?

On housing, there’s no simple remedy. A province like British Columbia is always going to be desirable given its temperate climate and thus housing is in high demand. Combine that with a high immigration rate and there’s always going to be demand pressure. Still, restrictions on land development in BC and across Canada also play a factor.

As for taxes, as it happens, I’ve done my bit to help make Canada more competitive. I was advising then-Alberta opposition leader Jason Kenney in 2019 when we and others discussed this campaign plank for the United Conservative Party.

I was in the room on February 1, 2019 when we and others discussed multiple options on tax policy. After several hours, I suggested one low rate as an alternative to a mish-mash of credits—and that made its way to the opposition party’s platform. The promise, announced one month later and since delivered, was to chop Alberta’s corporate tax rate by one-third, from 12% to 8%.

Back to Dallas.

The median house price for the Dallas Forth Worth metro area is $335,000, up 17 percent in the last year. So who knows? Maybe the Uber driver’s five-bedroom Dallas home is now worth $250,000, or—gasp—maybe even $275,000? Whatever it is, one can pretty much guarantee Dallas is still lower and much more affordable than most Canadian cities.

Or put another way: If Canadians want to know where the competition is for investment and jobs, it’s in the American southwest. It might be time to pay attention.

Mark Milke wears many hats and one is that of an author. His most recent book is The Victim Cult: How the culture of blame hurts everyone and wrecks civilizations.