Let the provinces lead Canada’s economic comeback: Hunter Prize 2025

The Hub’s third annual Hunter Prize for Public Policy, generously supported by the Hunter Family Foundation, focused on solving Canada’s stagnant living standards and slow productivity growth. A diverse group of ten finalists has been chosen from nearly 250 entries, with the finalists and winners chosen by an esteemed panel of judges, including Theo Argitis, Hon. Lisa Raitt, Frances Donald, Jack Mintz, and Alicia Planincic. The Hub is pleased to run essays from each finalist this week that lay out their plans to help solve this persistent policy problem. The Hunter Prize is made possible thanks to the support of the Centre for Civic Engagement. Canada stands at an economic crossroads. After a lost decade of economic growth, almost all indicators are flashing red—GDP per capita is sluggish, business investment continues to lag, and per-worker private sector investment has declined. Amidst this, there is a growing recognition that our economy has the capacity to do much better—economic dynamism must be restored. While governments have tried to remedy the situation with new programs and large subsidies, the results have been disappointing and may be further contributing to the problem. Despite the billions of public dollars spent each year to attract investment, private capital continues to depart our country at an alarming rate. Exacerbating our existing challenges of economic competition with the United States. But the key economic challenges we face also reveal our greatest opportunities. Bold structural reforms can enhance economic efficiency and cross-border competitiveness. The path forward is not simply spending more, but about governing smarter. Canada needs to get back to the basics and align fiscal power with economic responsibility. Provinces control most of the tools that shape economic competitiveness, such as land and development policy, permitting, energy capacity, and, of course, provincial tax rates. The federal government, however, holds a disproportionate amount of the fiscal capacity. This imbalance leaves provinces impotent to make bold structural reforms, even though they are best placed to understand and act on their own economic priorities. Addressing Canada’s productivity challenge requires moving beyond subsidy regimes to fundamental tax reforms that incentivize long-term investment and growth. To achieve this, we recommend a three-pronged tax reform program to enhance industrial competitiveness: 1) Provinces undertake strategic tax benchmarking initiatives, comparing their corporate tax regimes to peer U.S. states, implementing tax reductions to improve competitiveness. 2) The federal government offers conditional tax point transfers to provinces that pursue benchmarking to enhance the economic yield from benchmarking and/or provide the fiscal room to lower taxes without compromising services or fiscal stability. 3) Governments phase out business subsidies, with the savings redirected toward the tax point transfers and provincial tax reductions, ensuring the program remains financially sound. This mechanism would preserve provincial fiscal capacity, shift support from firm and industry-specific subsidies to broad-based tax reductions and enhance vertical fiscal alignment within Canada. Strategic tax benchmarking Historically, tax reduction measures have lacked a grand strategy; they have been domestically focused and constrained, rather than contextualized in a broader strategic framework to achieve regional and global competitiveness. Without undertaking tax analysis relative to peer jurisdictions, direct subsidies will always be inefficient and costly, as they need to account for existing tax disparities while also offering direct incentives. As a mid-size economy, Canada cannot compete on industrial subsidies alone—bigger economies can always offer bigger subsidies, as recent U.S. policies, like the Inflation Reduction Act (IRA) and the One Big Beautiful Bill Act, have made painfully clear. Tax rates are less dependent on the size of a country’s economy and thus offer a more neutral playing field for countries to freely compete on. Benchmarking would allow provinces to strengthen their unique competitive position by strategically adjusting their corporate tax frameworks to attract investment while reducing reliance on costly subsidies. Our economic malaise dictates that fiscal frameworks alone can no longer determine the ambitions of a tax cut. Tax point transfers Tax point transfers facilitate mutual investment between Ottawa and the provinces in the pursuit of lower taxes in the service of strategic competitiveness. Supporting these provincial initiatives with conditional federal tax point transfers, in lieu of less effective subsidies, would provide fiscal space and incentives for reform. This approach aligns fiscal responsibility with structural competitiveness, offering a sustainable means to raise Canada’s productivity and close the growing economic gap with the U.S. A one-size-fits-all national strategy can’t solve local competitiveness problems. But a national framework that empowers provinces to act can. Subsidy phase out Federal industrial subsidies in 2023-24 amounted to roughly $40 billion or 1.4 percent of GDP and are forecasted to reach about $50 billion in 2027–28. Compared to the U.S., we spend more than double on business subsidies as a share of GDP, yet productivity growth in Canada remains below the U.S. and the OECD averages. The phase out of federal industrial subsidies would represent both a strategic policy shift—from distortionary subsidies to broad base tax reductions—and a measure of fiscal recalibration. Phasing out direct subsidies has a value, but only an intermediary one in comparison to the full potential harnessed by simultaneously reducing tax burdens. It’s time to shift from competing over subsidies to competing over tax burdens. Conclusion A system built on benchmarking and conditional transfers would tie fiscal incentives to measurable outcomes. Provinces would be rewarded for narrowing competitiveness gaps and attracting private investment, not for the size of their spending announcements. It also recognizes that competitiveness challenges vary widely across the country. Alberta’s priority is attracting capital in energy and emerging industries. Ontario’s concern is the effective tax rate on manufacturing and technology. Atlantic Canada struggles with the higher cost of doing business in small markets. A single federal program cannot solve these diverse problems. A national framework that empowers provinces to design their own specific reforms can. The three-pronged plan of benchmarking, conditional tax point transfers, and spending reallocation is a realistic blueprint for economic revival. Read the policy paper: