The Big Bang Tax Reform to Get Canada Back on Track

March 3, 2026 – After a decade of virtually stagnant per-capita growth, coupled with ongoing geopolitical tensions, Canada faces an urgent need for a bold, comprehensive overhaul of the nation’s tax system to stimulate investment, raise wages, and restore competitiveness, according to a new report from the C.D. Howe Institute.

In “‘Big Bang’ Tax Reform: Unleashing Growth in the Canadian Economy,” Jack Mintz, Alexandre Laurin, and Nicholas Dahir propose a sweeping, revenue-neutral “big bang” reform designed to fundamentally restructure Canada’s federal tax system. Their framework would reduce reliance on income taxes, simplify compliance and administration, modernize corporate taxation, and remove barriers that discourage capital formation and work effort.

“Canada’s high marginal tax rates on middle- and upper-income earners discourage work, risk-taking, and the retention of talent – precisely when stronger growth is needed,” says Mintz, who chaired a business tax reform panel for Hon. Paul Martin and formerly served as President and CEO of the C.D. Howe Institute. At the same time, Canada’s corporate income tax rate has lost its advantage relative to the United States. “By relying less on the most economically damaging taxes, governments can raise real incomes, boost business investment, and strengthen the fiscal outlook without increasing the overall tax burden.”

Canada needs more than incremental tax tweaks. The report calls for an ambitious package of reforms. On the personal side, the authors propose lowering federal personal income tax rates while introducing a $10,000 tax allowance optionally replacing a suite of deductions and credits to cut complexity and compliance costs. On the business side, the authors propose overhauling the federal corporate tax system to significantly reduce the tax burden on new investment while removing special preferences, including accelerated depreciation, encouraging firms to reinvest and expand in Canada while boosting wages. To maintain revenue neutrality in the short term, the report proposes offsetting lower income tax revenues through a progressive employer payroll levy dedicated to health funding, or alternatively a modest GST adjustment.

“The proposed package of bold tax reforms would spur capital investment and economic growth, reduce the need for costly tax planning, and support higher employment and wage gains across the country,” says Laurin, Vice-President and Director of Research at the C.D. Howe Institute.

Over time, the report estimates that the proposed package of reforms could raise investment by $140 billion and lift GDP by about 2.5 percent – equivalent to nearly $79 billion in today’s dollars – yielding over $26 billion annually in additional tax revenue. With Canada scoring the lowest in after-tax income inequality among the G7 countries as of 2022, the report concludes that Canada’s focus for tax reform should be on economic growth, while limiting the burden on those with less ability to pay.

“Canada cannot tax its way to stronger growth if the system penalizes investment, innovation, and effort,” says Dahir. “A ‘big bang’ reform would create better jobs, raise living standards, and secure the long-term fiscal capacity needed to fund the public services Canadians value.”

Read the Full Report

For more information, contact: Jack Mintz, President’s Fellow, School of Public Policy, University of Calgary, and Senior Fellow, C.D. Howe Institute; Alexandre Laurin, Vice-President and Director, Research, C.D. Howe Institute; Nicholas Dahir, Research Officer, C.D. Howe Institute; and Raquel Schneider, Communications Officer, C.D. Howe Institute, 647-805-3918, rschneider@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

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