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Jake Fuss: Canada is going to stay stuck until we fix our pressing economic problems. Here’s how

Commentary

A man walks past a building in Toronto that used to house the Toronto Stock Exchange on August 18 2011. Aaron Vincent Elkaim/The Canadian Press.

A majority of Canadians think that Canada is broken after years of stagnant incomes, affordability challenges, rising crime, government failures on basic functions like healthcare and immigration, and a deepening cultural malaise. But decline is a choice, and better public policies are needed to overcome Canada’s many challenges. Kickstart Canada brings together leading voices in academia, think tanks, and business to lay out an optimistic vision for Canada’s future, providing the policy ideas that governments need to ensure a bright future for all Canadians.

The Trudeau government was first elected in 2015 based in part on a new approach to government policy, which promised greater prosperity for Canadians based on short-term deficit spending, lower taxes for most Canadians, and a more active approach to economic development. This new policy direction stood in stark contrast to the consensus of the previous 20 years. The result has been a marked deterioration in the country’s finances, declining living standards, and a collapse in business investment. If Canada is to restore its fiscal and economic health, Ottawa must enact fundamental policy reform.

Of particular concern, the country’s labour productivity—the total output of goods and services in the economy per hour worked—has dropped for seven of the last eight quarters. It’s therefore unsurprising that living standards for Canadians are falling alongside our productivity. Inflation-adjusted per-person GDP (a common indicator of living standards) declined from $59,905 to $58,028 between the middle of 2019 and the first quarter of 2024.

To help tackle these economic challenges, the Fraser Institute recently published more than a dozen essays on various policy reform options for the federal government. The series is co-edited by prominent economists Lawrence Schembri, former deputy governor of the Bank of Canada, and Jock Finlayson, former executive vice-president of the B.C. Business Council. This essay summarizes and explains some of the key ideas in the series thus far.

Poor government policy has led to a significant deterioration in federal finances over the last decade. The introduction of new and expanded government programs has caused federal spending to increase substantially, resulting in persistent deficits, rising debt, and rising debt-interest costs. No change in trajectory is expected in the near future as the latest federal budget projects more of the same for at least the next five fiscal years.

Additionally, Canada continues to maintain markedly uncompetitive personal income taxes compared to many other advanced countries, particularly the United States. The country’s relatively high tax rates (federal and provincial combined) discourage individuals from working, investing, saving, and engaging in productive entrepreneurial activity. They also hinder Canada’s ability to attract and retain high-skilled workers, entrepreneurs, and businessowners.

So, what’s the solution?

For starters, to improve economic incentives, the federal government could reduce personal income tax (PIT) rates and eliminate several tax credits. Meaningful changes to the PIT system have not been made in decades and are much overdue.

Many tax expenditures—the proliferation of credits, deductions, and other special preferences—do little to improve economic incentives and spur growth. The layering of tax expenditures for certain groups or activities distorts the tax system and creates biases against individuals who are not eligible for these special preferences. There are 49 different federal tax expenditures that could be eliminated and provide the federal government with $32.1 billion to lower marginal PIT rates.

The revenue generated from the removal of these tax expenditures along with a modest reduction in government spending would enable the federal government to remove the three middle-income tax rates of 20.5 percent, 26 percent, and 29 percent. And reduce the top marginal PIT rate from 33 percent to 29 percent.

These changes would establish a new tax landscape with just two federal PIT rates. Nearly all Canadians would face a marginal tax rate of 15 percent, while top earners would pay a marginal tax rate of 29 percent. These changes would improve incentives to work, save and invest, and make Canada more tax competitive and more attractive to high-skilled workers.

Moreover, if the federal government accelerated the timeline to balance the budget, it would accumulate less debt in the years ahead and help slow the growth in debt-interest costs. It would also reduce uncertainty about future tax increases and help create the necessary fiscal room for comprehensive tax rate reductions.

The federal government can introduce the aforementioned comprehensive tax reform package and achieve a balanced budget by 2026-27 by reducing annual program spending by 2.3 percent over a two-year period. By reducing program spending, the government would record a much smaller budget deficit in 2025-26 and achieve a balanced budget in 2026-27 as opposed to a $30.8 billion deficit, while accumulating less debt than currently planned.

Excessive regulations are also hampering Canada’s economy. According to a study published by the Canadian Federation of Independent Business, the total cost of government regulation to businesses amounted to $38.8 billion in 2020. If the federal government reduced regulatory red tape and subsequent compliance costs, firms could allocate more resources towards training their workers, investing in equipment, and producing new and better products.

In 2001, then-premier Gordon Campbell in British Columbia undertook a sweeping regulatory reform agenda. He appointed a minister of deregulation, with the goal of eliminating red tape, evaluating the benefits against the costs of each regulatory commitment, and removing unnecessary regulations. The federal government should follow this example and reduce the number of regulations by one-third while introducing legislation that requires two regulations to be eliminated for every new regulation added.

Far too much of the Canadian economy remains shielded from competition via government restrictions or protectionism. A recent analysis found that 32.6 percent of the Canadian economy was protected from competition in 2022. Barriers to competition harm innovation and lead to higher prices for consumers who purchase goods from protected firms.

The federal government should open up competition in the economy by removing restrictions on the entry of foreign-owned competitors in crucial industries such as telecommunications and air travel. There’s less incentive for Canadian firms to innovate or improve when there’s no threat to shake things up.

Interprovincial trade barriers also add between 7.8 percent and 14.5 percent to the prices of goods and services in Canada, which implies direct economic costs of around $32 billion a year. Ottawa should take a leadership role in eliminating interprovincial trade barriers. Recent estimates from the IMF suggest that removing internal trade barriers on goods would increase output in Canada’s economy by almost $90 billion annually, or $6,000 per household.

Canada’s economic challenges are daunting, but maintaining the status quo is not a viable option. It’s time for bold policy reform in Ottawa.

Kirk LaPointe: Poilievre should make a strong statement and endorse Rustad’s BC Conservatives—for both their sakes

Commentary

Conservative Leader Pierre Poilievre speaks during a news conference on safety in hospitals in Vancouver, on Tuesday, May 14, 2024. Ethan Cairns/The Canadian Press.

The Conservative Party of BC website is clear: the party has “no official affiliations to any federal, provincial and/or municipal parties.” This might come as a surprise to the newbie supporter, but, in case it’s lost on you, the site says the party is a “provincial party,” and the Conservative Party of Canada is, well, a “federal” one. Sounds like a pretty airtight distinction, but, not so quick, because it adds: “While our parties are divided in jurisdiction, we do share common conservative beliefs, including smaller government, personal freedom, and fiscal responsibility.”

Yes, so: same belief systems, same name, just not on the same shared path. Why? Because there’s another provincial suitor, the BC United Party, formerly the BC Liberals.

Not so long ago, BC United was considered—and considered itself—the logical fellow travellers of the federal Conservatives and the eventual recipient of its blessing. The BC United leadership, most of its MLAs, and the remaining membership after two election losses were decisively conservative given that many Liberals moved to the BC NDP. Why else get rid of the L-word in the party name if not to appease the conservatives? Then again, sometimes things don’t work out the way they’re planned. The conservatives didn’t care about the name change—they fled to the fledgling BC Conservatives.

Still, it is important to understand that this delicate, non-contact federal-provincial dance began in what now seems ancient days when the provincial Conservative party barely registered in the polls and BC United was the preeminent alternative—if a distant second that couldn’t seem to close the gap—to the ruling BC NDP.

At the time, and the time was not so long ago, there was nothing to be gained and much to be lost for Pierre Poilievre in choosing sides. His federal party was itself ascendant and wanted to scoop both party’s voters without offending anyone’s, so he stewarded a safe, agnostic approach. It meant photo ops with both, careful phrasing so as not to offend, and nary a discordant word of either.

And the covenant has so far held. The federal Conservative Party hasn’t yet been willing to throw its support behind one or the other.

Doing so might be messy—but it might also be worth it. Most have been expecting that, during the campaign leading up to the provincial election on October 19, Poilievre would wear an electric dog collar set to activate at the B.C.-Alberta border. But the political dynamic has changed majorly in 2024. It may be time to shelve the collar idea and have Poilievre come west, come way west, in the months ahead with a different purpose.

The BC Conservative party is rapidly rising, BC United is rapidly sinking, and the BC NDP is craning over their shoulders as the competition rapidly closes in. The question arises among Conservatives, provincial and federal, of whether it’s time to call what walks like a duck, acts like a duck, and quacks like a duck…a duck.

Not only might it be time, but might it be crucial?

There are dozens of days and political plays remaining before the next government of B.C. is determined. Momentum is on the BC Conservatives’ side, but polls still show a gap sufficiently large enough to return a majority BC NDP government. The notion of a unite-the-Right merger might have made sense a few months ago, but there are too many candidates nominated to salvage the idea now without taking too many people out of the picture with either party. No, it seems a new shot in the arm is required.

The federal Conservatives lead the federal NDP by 20 points in British Columbia (the Liberals are barely on the scoreboard), and with the BC Conservatives trailing the BC NDP, a federal endorsement only stands to be helpful to the BC Conservatives and low-risk to the federal Conservatives.

There is no particular problem now in walking away from BC United, who are in triage mode. Many within the party are looking for leader Kevin Falcon to step aside so the party can find a caretaker to get them through October and then into a soul-search on the future; the betting is that in time it’ll roll itself into the BC Conservatives, presuming they move more toward the centre-Right.

A Poilievre endorsement might be the difference in the campaign—just as the absence of one might also be. The worst scenario for the BC Conservatives would be to fail to gain the federal blessing and, having been denied the national Conservative Party’s machinery, presence, and resources, thereby lose the election. There would be quite the recrimination with the federal crew if it sat on its hands and squandered such a golden opportunity.

Poilievre and NDP Premier David Eby are carbon-based forms of life, but they hold little else in common. They would be wretched first minister partners, particularly in challenging economic times with troubling public balance sheets—the federal leader looking for wealth creation, the premier for wealth redistribution. Poilievre needs compliance and coherence, not confrontation and conflict, in Canada’s largest provinces.

As premier, BC Conservative leader John Rustad would easily be Poilievre’s clearest ally. The two share a distaste for the carbon tax and a shared vision on resource development, crime, health care, and much else.  Their prosperity plans would likely align, and a Rustad government would presage by a year a large part of Poilievre’s agenda; such was never going to be the case with Falcon’s BC United.

Day upon day, people are unhitching themselves from the BC United wagon. Donors are walking in serious numbers—the Conservatives more than doubled BC United’s second-quarter fundraising, and that gap will only widen as the real game approaches.

On the other hand, the NDP is raising more money than BC United and the BC Conservatives combined. It holds a strong poll position, features plenty of experienced MLAs, and has a get-out-the-vote machinery the BC Conservatives have yet to build. Anyone who thinks it will just watch the poll numbers weaken doesn’t know how suited it is to playing hardball.

Poilievre has a penchant for the sharp statement. This sure would be one of them.