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From private debt and equity markets to crowd funding, exempt markets have been used to raise more money for Canadian enterprises in recent years than all public offerings put together. Vastly more: Between 2010 and 2012, exempt-market offerings raised four times as much capital as the initial and secondary public offerings during the same period. The precise reasons behind the immense popularity of exempt markets can only be guessed at; it may well be due to the desire, by both issuers and by investors, to avoid the regulatory costs associated with raising capital in public markets. We are left to speculate, however, because the Canadian exempt market remains relatively unstudied, despite its enormous role in funding capital investments in Canada. The lack of information about exempt markets, however, is not stopping provincial regulators in Canada's largest markets from charging ahead with new proposals for rules that would govern exempt markets. Unfortunately, with so little information available about these markets, whatever the aim of the reforms in pursuing the goals of effective market regulation, they may end up being more harmful than helpful. Ontario is proposing to broaden the category of investors eligible to participate in these markets under a new exemption. But the category will remain stricter than in many other markets and Ontario proposes to also put very low limits on how much each investor is allowed to put at risk. Quebec, Alberta and Saskatchewan are also proposing the same $30,000 limit for any given 12-month period. And Ontario will prohibit the sale of exemptmarket securities by agents that are related to, or affiliated with, the registrant, even if measures are employed that have previously been accepted in managing and mitigating conflicts of interest. This will have a direct and damaging impact on exempt-market dealers, who are only allowed to sell exempt-market securities. All of these proposals are intended to protect investors from the higher risks that are presumed of exempt markets. However, there is no evidence — given the paucity of information about them — that exempt markets necessarily pose a greater risk of fraud or poorer returns and losses than do heavily regulated public markets. And if risk is indeed higher in the exempt markets, one would expect these proposed regulations to assist highquality firms from distinguishing themselves in the exempt market from low-quality firms. However, these regulations may actually have the opposite effect, making it harder for better-quality firms to signal their worthiness to investors. Canadian productivity — which continues to lag relative to other developed economies — relies heavily on businesses being able to acquire capital for investing in new technologies. Canadian companies and investors appear to be voting with their feet for exempt markets in raising that capital, possibly discouraged from public markets by regulatory costs and inefficiencies. For policy-makers to layer additional regulation on top of exempt markets without fully understanding the impact that it will have, could well result in making Canadian markets, and Canada's economy, weaker, rather than stronger.

If voters kill British Columbia's Harmonized Sales Tax (HST) in a June referendum, the province's economy will suffer in the long run. A rejection will spur the rebirth of the provincial retail sales tax, leading to steep increases in the marginal effective tax rates on capital and costs and a corresponding dip in investment and job creation. Should voters decide to keep the HST, BC will reduce the tax by two points over the next three years and raise the corporate income tax rate to bridge the revenue gap. This will also negatively impact corporate competitiveness, but since the government has indicated that the hike will be temporary, retaining the HST is the best option for BC's economy.

If voters kill British Columbia's Harmonized Sales Tax (HST) in a June referendum, the province's economy will suffer in the long run. A rejection will spur the rebirth of the provincial retail sales tax, leading to steep increases in the marginal effective tax rates on capital and costs and a corresponding dip in investment and job creation. Should voters decide to keep the HST, BC will reduce the tax by two points over the next three years and raise the corporate income tax rate to bridge the revenue gap. This will also negatively impact corporate competitiveness, but since the government has indicated that the hike will be temporary, retaining the HST is the best option for BC's economy.

British Columbia's harmonization of its sales tax with the federal goods and services tax (GST) will result in a giant leap in the province's competitiveness, both domestically and internationally.
By 2020, the combined effect of federal and provincial corporate tax cuts and sales tax harmonization is expected to increase the province's capital stock by more than $14.4 billion and add 141,000 new jobs. Sales tax harmonization alone will account for an increase of $11.5 billion in capital investment and a net increase of 113,000 jobs by the end of the coming decade.
British Columbia's tax reform, especially its adoption of the harmonized sales tax, also will reduce the marginal effective tax rate (METR) on capital for all industrial sectors and all sizes of businesses. Even though selected exemptions were provided to relieve some capital goods from the existing retail sales tax, sales tax harmonization will remove most taxes on capital purchases after July 1, 2010. Sales tax harmonization will reduce the METR on capital for large and medium-sized companies from 29.5% in 2009 to 21.6% in 2010, while additional corporate tax reductions will further reduce the METR to 20.5% in 2010 and to 17.9% by 2018. For small businesses, the METR will decline sharply from 24.7% in 2009 to 11.5% in 2010, primarily due to sales tax harmonization. With the reduction of the small business tax rate to zero in 2012, the METR on small business investment will decline further to 9.9%.
By 2018, British Columbia's METR on capital will be internationally competitive — lower than the current rate in Australia, France, Germany, Italy, Japan, South Korea, the United Kingdom, and the United States, about the same as in New Zealand, and only slightly above that in the Netherlands and China. It will also be lower than in all other provinces — notably including Alberta — except Newfoundland and Labrador, Nova Scotia, and New Brunswick, which have already harmonized their sales taxes with the federal GST.

The purpose of this report is to provide cost of capital formulae for assessing the effects of taxation on the incentive to invest in oil and gas industries in Canada.
The analysis is based on the assumption that businesses invest in capital until the after-tax rate of return on capital is equal to the tax-adjusted cost of capital. The cost of capital in absence of taxation is the inflation-adjusted cost of finance. The after-tax rate of return on capital is the annualized profit earned on a project net of the taxes paid by the businesses. For this purpose, we include corporate income, sales and other capital-related taxes as applied to oil and gas investments.
For oil and gas taxation, it is necessary to account for royalties in a special way. Royalties are payment made by businesses for the right to extract oil and gas from land owned by the property holder. The land is owned by the province so the royalties are a rental payment for the benefit received from extracting the product from provincial lands. Thus, provincial royalty payments are a cost to oil and gas companies for using public property.
However, since the provincial government is responsible for the royalty regime and could use taxes like the corporate income tax to extract revenue, one might think of royalties as part of the overall fiscal regime to raise revenue. In principle, one should subtract the rental benefit received from oil and gas businesses from taxes and royalty payments to assess the overall fiscal impact. This is impossible to do without measuring some explicit rental rate for use of provincial property. Further, royalty payments may distort economic decisions unlike a payment based on the economic rents earned on oil and gas projects. Instead, for comparability across jurisdictions, one might calculate the aggregate tax and royalty effective tax rates (such as between Alberta and Texas).

The purpose of this report is to provide cost of capital formulae for assessing the effects of taxation on the incentive to invest in oil and gas industries in Canada. The analysis is based on the assumption that businesses invest in capital until the after-tax rate of return on capital is equal to the tax-adjusted cost of capital. The cost of capital in absence of taxation is the inflation-adjusted cost of finance. The after-tax rate of return on capital is the annualized profit earned on a project net of the taxes paid by the businesses. For this purpose, we include corporate income, sales and other capital-related taxes as applied to oil and gas investments. For oil and gas taxation, it is necessary to account for royalties in a special way. Royalties are payment made by businesses for the right to extract oil and gas from land owned by the property holder. The land is owned by the province so the royalties are a rental payment for the benefit received from extracting the product from provincial lands. Thus, provincial royalty payments are a cost to oil and gas companies for using public property. However, since the provincial government is responsible for the royalty regime and could use taxes like the corporate income tax to extract revenue, one might think of royalties as part of the overall fiscal regime to raise revenue. In principle, one should subtract the rental benefit received from oil and gas businesses from taxes and royalty payments to assess the overall fiscal impact. This is impossible to do without measuring some explicit rental rate for use of provincial property. Further, royalty payments may distort economic decisions unlike a payment based on the economic rents earned on oil and gas projects. Instead, for comparability across jurisdictions, one might calculate the aggregate tax and royalty effective tax rates (such as between Alberta and Texas).

• The 2009 Ontario Budget measures, together with other recent tax changes, will have a profound impact on Ontario's competitiveness by lowering the tax burden on new business investment.
• Within ten years, Ontario will benefit from: – increased capital investment of $47 billion; – increased annual incomes of up to 8.8%, or $29.4 billion; and – an estimated 591,000 net new jobs.

This paper documents the impact of the 2009 Ontario Budget and other recent tax changes on capital investment, jobs, and incomes in the province.
In the March 2009 Budget, Ontario announced it will harmonize its sales tax with the federal goods and services tax (GST) as well as reduce corporate and personal taxes. The Budget measures will have a profound impact on the willingness of business to invest in Ontario since corporate tax rate reductions and the adoption of the federal GST base would result in the virtual elimination of taxes on capital goods and business intermediate inputs once fully phased in.
Since 1980, when I began modelling the impact of taxes on investment, this is the largest change ever seen in a single budget, leading to the sharpest reduction in the tax burden on capital investment in any one province. Coupled with federal reductions in corporate taxes and Ontario's already legislated elimination of all remaining capital taxes,1 Ontario will see its effective tax rate on new investments by medium and large businesses plummet from 33.6% in 2009 to 23.7% in 2010 and then to 18.5% by 2018. The province will then have an effective tax rate on non-resource investments that is similar to most other provinces, including Alberta, British Columbia, and Quebec. Ontario will also improve its international competitiveness dramatically with a lower tax burden on new investment compared with the average of 20 major industrialized and emerging economies.
Small businesses will also benefit substantially from the 2009 Budget. The effective tax rate on small business investment will fall by more than half, from 28.6% to 13.3%, due to the one percentage point reduction in the corporate tax rate and sales tax harmonization. Sales tax harmonization will have a large impact since the Ontario retail sales tax especially hurts investment in machinery that Ontario's small businesses use intensively.
Within ten years, the lower tax burden on investment will lead to increases in capital investment of $47 billion and in annual incomes of between 4.4% and 8.8%, and to the creation of an estimated 591,000 net new jobs.

Alberta historically has prided itself on its provincial tax advantage, and for good reason. With abundant natural resource revenues, the province has been able to leverage its advantage to attract capital and people in order to grow and diversify its economy. Low tax rates have also meant fewer disincentives for people to work and invest in Alberta than they face in other provinces. Alberta's tax advantage, however, is diminishing as tax regimes in other provinces become more competitive. In part, this is good news for Alberta since tax reductions, both in other provinces and at the federal level, make Canada a more attractive place in which to do business, which, in turn, increases demand for Alberta's goods and services. The bad news is that Alberta could lose its tax advantage altogether within a decade if its balanced-budget spending growth requires increased taxation. In this Communiqué, I suggest an approach that would maintain Alberta's tax competitiveness: a rule limiting spending increases and a move toward a growth-maximizing, less volatile tax structure by shifting taxes away from investment and savings toward levies related to private and public consumption.