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FINWIRES

Canada's Productivity Issues Made Worse by the "Silent Brain Drain", Says TD

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Canada's productivity challenges are magnified by struggles around the retention of top talent, according to TD Economics.

Canada's strong record of educating and training globally-competitive workers and entrepreneurs is undermined by substantially higher personal taxes that draw those individuals elsewhere, particularly to the United States, which has always been highly selective in attracting people from Canada's upper tail, wrote the bank in a note to clients.

The fundamental problem isn't attracting talent but anchoring it, said TD. Canada produces strong research and education outcomes but underperforms on commercialization, business research and development, tech adoption, and scaling firms, which lowers the domestic returns to skill and entrepreneurship versus U.S. innovation clusters, it added.

Canada's tax and incentive structure further compounds the issue, said the bank. High top marginal personal tax rates kick in at much lower income thresholds, while complex business tax rules encourage remaining small rather than growth, it added.

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