When moving up means moving out

Even record debt levels — household debt-to-income ratio in Canada is now at 152% — seem to have done little to get Canadians to move for a chance to get ahead

Just pick up and move. Who wouldn’t, if it meant making more money or even just living in a city where the cost of living is lower or the tax burden smaller?

The answer is most Canadians.

Even though it’s probably one of the biggest personal financial decisions you can make — and often a sure-fire way to increase your net worth — we seem to have a degree of inertia other countries don’t share.

You can’t discount the personal attachment people have to their existing addresses tied up in connections to family and friends and familiarity.

Americans consider mobility an essential ingredient to a better life

But none of this seems to stop Americans from moving around their country to look for a better paying job or for a better tax rate. A study from the World Bank found a little over 3% of workers move annually within the 50 states, which compares with just under 1% of Canadian workers moving within the 10 provinces.

“This higher level of mobility partly reflects the culture of a country built through immigration,” said the report. “Americans consider mobility an essential ingredient to a better life.”

Craig Alexander, chief economist with Toronto-Dominion Bank, said labour mobility has always been higher in the U.S.

“The U.S. is an exception because it has the highest labour mobility rate of any country in the world,” he says. “Look at Europe — and they have an economic union — and you don’t get nearly as much labour mobility as the U.S.”

He said the trend of workers to move from the northeast to warmer climates is also hard to replicate in Canada.

“Our north-south is a little different.”

Even record debt levels — household debt-to-income ratio in Canada is now at 152% — seem to have done little to get Canadians to move for a chance to get ahead.

A new government in Quebec — even one that supports separatism and potentially raising taxes in what is already the highest taxed jurisdiction in the country for most income classes — is unlikely to have a major impact on interprovincial migration.

A study released in February by Montreal’s HEC business school suggested the province was already on the way to becoming the country’s poorest province. Quebec’s cheaper cost of living is eroding while the gap in income levels between it and other provinces is widening.

But is personal wealth or lack of it enough to convince people in Quebec — or any province for that matter — to move. “It will be a factor but it’s hard to quantify,” says Martin Coiteux, an economist who wrote the study for the HEC’s Centre for Productivity and Prosperity.

Alberta may have the jobs and the lowest unemployment rate in the country, not to mention no sales tax, but it did little to encourage Quebecers to move there. Statistics Canada says between July 1, 2009 and June 30, 2010 slightly less than 4,000 of them made that move. Much smaller Nova Scotia had 4,233 people make the decision to pack and go West.

Mr. Alexander points out that governments in Canada sometimes make it difficult to move because professional designations are not always recognized in other locales. “Some of the provinces are getting better at recognizing professional accreditation but it’s still not seamless across the country,” he says. “That’s one the biggest barriers [to moving].”

At what point does it make sense to move? That decision depends on the cost of living, which includes such things as the tax rate and housing, but also how much more income you can pull in by pulling up stakes.

“It’s complicated during your working life because the cost of living can be offset by higher wages and salaries,” says Mr. Alexander, adding that moving back home to the East Coast on retirement with its cheaper cost of living has created a windfall for some Atlantic Canadians.

Housing is more expensive in Alberta, for instance, but income levels are higher too. Consider median income for all families in Nova Scotia was $64,100 in 2010, according to Statistics Canada. The figure jumps to $85,380 for the same period in Alberta. Head out to British Columbia, where detached homes in Vancouver average out to nearly $1-million, and you’ve got median family income of $66,970.

You can get some tax savings moving around the country and that will drove your costs down. Punch $60,000 in to Ernst and Young’s online tax calculator for 2012 and you find a B.C. resident would be left with $48,345 in after tax income — the highest among the provinces at that tax level. At $44,619, Quebec would leave you with the lowest after tax income.

I think we are more focused and grounded here on what is important and that’s family and friends

Jamie Golombek, managing director of tax & estate planning with CIBC Private Wealth Management, says Canadians don’t usually move for tax reasons alone but he wonders whether Ontario’s new surtax on people making more than $500,000 will have a direct impact.

“Ontario will ultimately have the highest rate,” says Mr. Golombek. “You have to have a very dramatic tax difference [to move]. I don’t think people will move from Quebec to Ontario for 2%.”

Mr. Golombek’s own theory on why people are unwilling move is more related to tradition than taxes. He says Americans are used to moving out of their home and leaving town for school.

“Once you are away for school it becomes easier to take a job anywhere in the U.S. In Canada, for the most part, people go to school closer to where they live,” he says.

Financial education Talbot Stevens says lifestyle seems as important to Canadians as their personal income statement.

“I think we are more focused and grounded here on what is important and that’s family and friends,” says Mr. Stevens. “The American dream is to get rich and have all the money you need even though it might cost you two or three marriages. You can see that attitude right across the country.”

But there is a point where people will move for the money and it usually starts with the fact you can’t get a job where you live.

“People leave the East Coast because they have to,” says Mr. Stevens. “Income opportunities dominate the discussion more than the tax environment. The lifestyle argument doesn’t work if you don’t have a job.

“Inertia will keep you where you live unless there is an external force that causes you to move.”