Welcome to Need to Know, The Hub’s roundup of experts and insiders providing insights into the developments Canadians need to be keeping an eye on.
Today’s weekend edition dives into thought-provoking research from think tanks, academics, and leading policy thinkers in Canada and around the world. Here’s what’s got us thinking this week.
Canada is in for some rough economic waters ahead. Royal Bank of Canada (RBC) now projects that Canadian real GDP will only grow by 1.5 percent in 2025 and 1.3 percent in 2026. The growth trajectory looks even worse for Ontario, where real GDP growth is projected to be a paltry 1.2 percent this year and next.
This is a sharp deterioration from what RBC was projecting last March. Just a year ago, the bank estimated that Canada’s real GDP growth would be 2.2 percent, and Ontario’s would be more than a full percentage point higher at 2.3 percent.
While President Trump’s trade war is certainly depressing Canada’s economic growth outlook, the reality is that Canadians have been on economically shaky ground for several years. GDP per capita, a measure of average living standards, has been in decline for the past few quarters, our business investment has been low relative to our peers, and much of the country has been gripped by an affordability crisis.
Canada can’t control the actions of the U.S. president, but we can put our own economic house in order. Let’s look at a few recent proposals.
It’s time for Ford to reduce the tax burden on Ontarians
Ontario’s economic growth is projected to be below Canada’s for the next two years, according to RBC. Given this reality, there is an opportunity for the province to pursue pro-growth tax reform and shake off some of its economic shackles.
However, a new report by the Fraser Institute reveals that Ontario’s tax burden has increased under Premier Doug Ford’s Progressive Conservative government, despite campaign promises to lower taxes. The study finds that while Ford was critical of his Liberal predecessor’s tax hikes, his government has not meaningfully reduced tax rates. In fact, tax revenue as a share of GDP has climbed from 12.1 percent in 2017-18 to 13.4 percent in 2023-24. On a per-Ontarian basis, the tax burden has risen to over $9,400, meaning that the tax revenue increases outpaced population growth.
The report highlights that personal and corporate income tax rates have remained unchanged since the McGuinty and Wynne governments, with Ontario still imposing one of the highest top personal income tax rates in North America.
The study proposes two tax reform scenarios to boost economic growth. The first, a moderate reform, suggests rolling back the “temporary” top-income tax bracket brought forward in 2013 and reducing corporate tax rates slightly, which would lower government revenues by $5 billion.
The second, a more ambitious plan, would cut income tax rates significantly and reduce corporate taxes to match Alberta’s 8 percent, shrinking revenues by $11.6 billion, but setting Ontario on a much better trajectory for economic growth.
The authors conclude that tax reductions would incentivize investment and economic activity, ultimately offsetting some revenue losses. However, they acknowledge Ontario’s high debt levels and ongoing deficits, which could complicate implementation.
For instance, according to Ontario’s 2024 Fall Economic Statement, the government is projected to run a $6.6 billion deficit in 2024-25, with net debt as a share of GDP reaching 37.8 percent. This is despite the large increase in revenues discussed above. Moreover, total expenses are projected to be $218.3 billion in 2024-25, which is more than $35 billion higher than the $183.1 billion that the government spent at the height of the pandemic in 2021-22.
If Ontario is serious about enacting pro-growth tax reform they will need to get their spending under control.
Middle-class Canadian tax relief
Speaking of tax relief, this is something middle-class Canadians may be looking for amid an affordability crisis and upcoming federal election.
A new report by Western University assistant professor of economics Jason Dean, for the Montreal Economic Institute, argues that Canada’s middle class is being overlooked in current tax policies. He calls for bold reform which would eliminate the middle-income tax bracket. The study highlights how current marginal tax rates create economic distortions, penalizing workers who seek higher earnings. It proposes collapsing the first two federal tax brackets into a single 15 percent rate, offering broad relief to middle-income earners.
Under our current system, moving from the lowest to the second tax bracket (when earnings hit $55,867) triggers a sharp 5.5 percentage-point increase in federal taxes from 15 percent to 20.5 percent, arguably discouraging additional work and investment.
The report finds that eliminating this jump would benefit 8.5 million Canadian workers, delivering $9.4 billion in tax relief for middle-income earners. This would amount to an average tax savings of $1,157 per filer or over $2,300 for a family of two income earners. Those earning $65,000 would save $502, while those at $110,000 would see nearly $3,000 in relief annually.
Beyond reducing tax burdens, the reform aims to incentivize productivity, potentially expanding the tax base by encouraging more work and investment. The study warns that Canada has fallen behind the U.S. in tax competitiveness and urges policymakers to adopt a simpler, pro-growth tax structure before economic conditions worsen.
The oil and gas emissions cap could cost tens of thousands of jobs
Finally, if Canadian policymakers want to unleash the economy, leaning into resource development will play a key role. Yet, critics of resource policies such as the proposed oil and gas emissions cap, argue the Trudeau government has spent years holding the oil and gas sector back. Now, even independent and nonpartisan economic analysts agree it would represent a blow to the industry.
A new report from the Parliamentary Budget Officer (PBO) assesses the economic impact of the federal government’s cap, revealing significant production cuts and economic losses. The cap, which aims to reduce emissions from the sector by 27 percent below 2026 levels between 2030 and 2032, is expected to lower Canada’s real GDP by 0.39 percent in 2032. This would translate to a $20.5 billion reduction in nominal GDP. It is also projected to eliminate 40,300 jobs across the economy by 2032.
These economic and job losses would be the result of production cuts. To comply, upstream oil and gas production—including conventional oil, oil sands, and natural gas—would need to decline by 4.9 percent from projected levels between 2030 and 2032. However, total production would still be 11.1 percent higher than current levels due to overall industry growth.
The report contrasts with government estimates, which suggested only minor economic disruption. The federal analysis predicted only a 0.04 percent reduction in real GDP and production cuts of just 0.7 percent over the period of 2030-32.
Meanwhile, third-party studies commissioned by Alberta’s government warn of steeper impacts, estimating GDP losses of up to 0.9 percent by 2030.
However, the future of the cap remains uncertain, as Prime Minister Carney has previously said that he opposes the policy.
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Taylor is The Hub's Research and Prize Manager. He is a Ph.D. candidate in Political Science at the University of Toronto. He…
