Welcome to The Think Tank, your Saturday dive into thought-provoking research from think tanks, academics, and leading policy thinkers in Canada and around the world, curated by The Hub. Here’s what’s got us thinking this week.
Understandably, President Trump is taking up a lot of electoral bandwidth this cycle. Seesawing trade policy, the breakdown of American alliances, and threats of becoming the 51st state are at the top of many Canadian minds.
However, to paraphrase former Prime Minister Stephen Harper, who spoke at a Conservative rally in Edmonton this week, we can’t control the whims of Trump, but we can control our own economic future after a lost decade of economic growth.
With this in mind, it’s a bit surprising that we haven’t yet seen bold, comprehensive economic growth plans from the major parties. The Conservatives have introduced a capital gains rollover, an energy corridor, and regulatory reform, which they packaged this week into a “Canada First Economic Action Plan.” The Liberals have also announced regulatory reform measures and other policies aimed at promoting economic growth similar to their Tory rivals.
However, the cuts both parties will make to the first income tax bracket will likely do little to enhance Canada’s growth prospects, but take up a lot of fiscal room. Much more could be done by the parties to put economic growth front and centre.
Let’s take a look at a few recent proposals from Canadian think tanks that the parties could adopt to unleash Canadian economic growth.
A comprehensive economic growth strategy that policymakers should keep their eyes on
As Canada manages a renewed wave of protectionism under U.S. President Donald Trump, a new C.D. Howe Institute report lays out an ambitious roadmap for the country’s next federal government. The report, authored by economist John Lester, warns that Trump’s aggressive tariffs pose a direct threat to Canada’s economic security—and urges a strategic, long-term pivot to bolster national resilience.
The centerpiece of the plan is reducing Canada’s dependence on the U.S. market. The report recommends finalizing trade deals with the United Kingdom and Southeast Asia, removing internal trade barriers, and accelerating major resource and infrastructure projects. These moves, he argues, would not only protect against future economic shocks but also boost Canada’s sluggish productivity.
To address the productivity gap, the report calls for a major overhaul of Canada’s tax and innovation systems. It proposes cutting the corporate tax rate, eliminating the small business tax preference, and shifting R&D incentives toward commercialization. New measures would encourage Canadian firms to retain and grow intellectual property at home, while expanded venture capital funding would reduce reliance on foreign investors.
Immigration policy is also a target for reform, with the report urging lower intake numbers and stricter criteria focused on high-skilled applicants. A national agency could be created to streamline foreign credential recognition and align it with Canadian labour needs.
On affordability, the report calls for phasing out supply management to lower food prices, which could have consumer benefits of more than $6 billion annually.
Lester also recommends that Canada’s next government should maintain clear carbon pricing for heavy emitters, with provincially implemented systems and output-based allowances. He adds that levels should be regularly reviewed to ensure they drive feasible emissions reductions, without undermining competitiveness in export markets.
It concludes with a call for fiscal discipline, advocating a legislated spending cap and new rules for budget transparency. The overarching message: Canada must take control of its economic future, or risk being swept aside by global forces beyond its control.
Tax reform has a big role to play in unleashing economic growth
Next, consider the proposals in two recent reports by economist Ross McKitrick for the Macdonald-Laurier Institute (MLI).
The first study presents a compelling case for reducing personal income taxes to enhance the nation’s economic vitality. The report highlights that Canada’s high marginal income tax rates, which approach 50 percent even for lower-income earners, are significantly higher than those in the United States. This substantial tax burden is identified as a key factor driving skilled workers and investment away from Canada.
The report argues that the federal government’s repeated deficits are primarily due to overspending rather than insufficient revenue. For instance, spending growth is such that if the federal government had held spending to a fixed share of GDP over the past decade, it would be 15 percent lower today.
The study suggests that disciplined spending cuts could create fiscal space for income tax reductions, which, in turn, could invigorate economic activity and potentially be self-financing over time. In terms of numbers, the study references calls for introducing a much flatter system with only two brackets as opposed to the current five, while also recommending that the second bracket kick in at a much higher rate.
By lowering personal income taxes, the government could then increase incentives for work, savings, and investment, thereby fostering long-term economic growth.
Canada needs capital investment to address its productivity problems
McKitrick’s second recent study for MLI underscores a pressing concern: Canada’s declining capital investment per worker. Capital includes things like investments in machinery, equipment, and intellectual property that workers can use to be more productive. This shortfall is linked to what he calls burdensome corporate taxes and regulatory frameworks that deter investment. The report calls for comprehensive reforms to corporate taxation and regulation to attract new capital, enhance productivity, and reverse the trend of declining investment.
The study highlights that Canadian workers now have access to just 55 percent of the capital per worker available to their American peers. This disparity has contributed to a 15 percent decline in Canada’s per-capita income relative to the U.S., since 2015. McKitrick emphasizes that without significant policy changes, Canada’s economic growth and standard of living may continue to lag behind its neighbours to the south.
To address these challenges, the report recommends several key policy reforms, including reducing corporate tax rates, implementing accelerated depreciation (allowing firms to deduct large portions of an asset’s cost earlier) to incentivize investment, and simplifying regulatory processes to reduce barriers for businesses and attract foreign investment.
The report concludes that Canada’s economic future depends on its ability to implement these reforms promptly. By creating a more favourable investment climate, we could boost productivity, enhance competitiveness, and improve our citizens’ living standards.
Taken together, the recent studies from C.D. Howe and MLI offer unique paths forward to addressing Canada’s lost economic decade. Let’s hope some politicians are listening.
ChatGPT assisted in the creation of this article.
Taylor is The Hub's Research and Prize Manager. He is a Ph.D. candidate in Political Science at the University of Toronto. He…
