Canada is about to enter a new era of economic prosperity.
But with the country in a political tailspin over the next two years, it will also become more expensive to operate the Canadian economy, the OECD says.
The OECD has warned of the “big, scary” change in the way Canada’s federal and provincial tax systems work and has urged a major overhaul.
It has been pushing to replace the Canada Pension Plan (CPP) with a more effective, national insurance-like system.
But a new federal government’s proposed budget could change all that, as the country will now have to change its tax system, with a cost of $1,8bn.
The change to Canada’s tax system is expected to have an impact on the number of jobs that are created and how much they pay.
But the OECD has a more dire warning for future changes to Canada.
The changes are likely to reduce the number and strength of the jobs that Canadians create, and that, if left unchecked, could lead to a deficit over the long-term.
The government’s plan to overhaul Canada’s income tax system would create a new national tax system that will be more expensive than the current one.
The impact of the proposed changes would be felt across the economy, including the economy’s contribution to the federal budget deficit.
A new tax system “will be more costly than existing systems” because it will require changes to the structure of the federal and provinces’ income tax systems, the Organization for Economic Co-operation and Development (OECD) said in its report, The Economics of National Insurance and the Canada Taxpayer’s Share of the Tax System, published this week.
It said this could lead Canada to “a loss of at least $1 trillion over the medium term, a substantial fiscal burden and a higher unemployment rate”.
It warned that this would cause an economic downturn and a fiscal drag on the economy.
The new system “could also cause the cost of goods and services to be more sensitive to changes in tax rates”.
There are some benefits for businesses that are able to adjust their tax rates.
But this is a “significant risk”, the OECD said.
For the most part, it said, “the major losers from changes to tax rates are businesses that rely on high tax rates to compete with foreign competitors, because their business will not be able to maintain its tax rates.”
The OECD said Canada’s new tax structure would lead to an increase in the number or size of tax returns filed, because of the increased tax burden and the higher cost of complying with tax returns.
And the tax systems would require changes in how companies are taxed, “in part because companies will have to pay higher rates to pay their share of the tax burden”.
The OECD warned that it was “highly unlikely” the federal government would adopt a new tax policy “at the time of the next election” because of its commitment to the current system.
The federal government has said it will adopt a more progressive tax system.
Its new tax plan will have a positive impact on tax revenues, which will be passed onto the provinces and territories in the form of lower overall taxes.
The provinces will get the additional revenue in the current budget.
But it will be smaller than the federal governments current tax system – about $1 billion.
The plan would have a negative impact on provincial and territorial governments.
It would lead them to pass on the cost to the provinces.
And it would be less effective because it would not include a replacement for the Canada Child Benefit, which has already been removed as part of the new system.
This is because the federal contribution to Canada Pension Plans has been cut by $1bn over the past two years.
The cut in CPP payments is also expected to lead to fewer tax refunds.
The amount of money the federal Government receives in CPs tax credits has also been reduced.
The Conservatives have promised a new, more progressive, system in which they would pay more to the states and territories for public services.
But they have yet to deliver on their promise.
A tax system That will have many costs The OECD’s report found that Canada’s current tax structure was “unlikely to have any significant impact on Canada’s economic performance in the medium or long run”.
In the long run, it found that the change would lead the federal deficit to be “largely offset by a reduction in federal taxes”.
In addition, the federal tax structure could lead the country to lose jobs.
In its report the OECD noted that Canada has lost more than 5.7 million jobs in the past five years, and added that the federal economy is still struggling.
It also said that the OECD is “somewhat concerned about the potential for a loss of more than 4 million jobs during the next decade”