From the Fraser Institute

By Kenneth P. Green

To state the obvious, poorly-devised government policies can not only fail to provide benefits but can actually do more harm than good.

For example, the federal government’s so-called “Clean Fuel Regulations” (or CFRs) meant to promote the use of low-carbon emitting “biofuels” produced in Canada. The CFRs, which were enacted by the Trudeau government, went into effect in July 2023. The result? Higher domestic biofuel prices and increased dependence on the importation of biofuels from the United States.

Here’s how it works. The CFRs stipulate that commercial fuel producers (gasoline, diesel fuel) must use a certain share of “biofuels”—that is, ethanol, bio-diesel or similar non-fossil-fuel derived energetic chemicals in their final fuel product. Unfortunately, Canada’s biofuel producers are having trouble meeting this demand. According to a recent report, “Canada’s low carbon fuel industry is struggling,” which has led to an “influx of low-cost imports” into Canada, undermining the viability of domestic biofuel producers. As a result, “many biofuels projects—mostly renewable diesel and sustainable aviation fuel—have been paused or cancelled.”

Adding insult to injury, the CFRs are also economically costly to consumers. According to a 2023 report by the Parliamentary Budget Officer, “the cost to lower income households represents a larger share of their disposable income compared to higher income households. At the national level, in 2030, the cost of the Clean Fuel Regulations to households ranges from 0.62 per cent of disposable income (or $231) for lower income households to 0.35 per cent of disposable income (or $1,008) for higher income households.”

Moreover, “Relative to disposable income, the cost of the Clean Fuel Regulations to the average household in 2030 is the highest in Saskatchewan (0.87 per cent, or $1,117), Alberta (0.80 per cent, or $1,157) and Newfoundland and Labrador (0.80 per cent, or $850), reflecting the higher fossil fuel intensity of their economies. Meanwhile, relative to disposable income, the cost of the Clean Fuel Regulations to the average household in 2030 is the lowest in British Columbia (0.28 per cent, or $384).”

So, let’s review. A government mandate for the use of lower-carbon fuels has not only hurt fuel consumers, it has perversely driven sourcing of said lower-carbon fuels away from Canadian producers to lower-cost higher-volume U.S. producers. All this to the deficit of the Canadian economy, and the benefit of the American economy. That’s two perverse impacts in one piece of legislation.

Remember, the intended beneficiaries of most climate policies are usually portrayed as lower-income folks who will purportedly suffer the most from future climate change. The CFRs whack these people the hardest in their already-strained wallets. The CFRs were also—in theory—designed to stimulate Canada’s lower-carbon fuel industry to satisfy domestic demand by fuel producers. Instead, these producers are now looking to U.S. imports to comply with the CFRs, while Canadian lower-carbon fuel producers languish and fade away.

Poorly-devised government policies can do more harm than good. Clearly, Prime Minister Carney and his government should scrap these wrongheaded regulations and let gasoline and diesel producers produce fuel—responsibly, but as cheaply as possible—to meet market demand, for the benefit of Canadians and their families. A radical concept, I know.

Kenneth P. Green

Senior Fellow, Fraser Institute

From the Fraser Institute

By Austin Thompson

While there are many reasons for Canada’s housing affordability crisis, taxes on new homes—including the federal Goods and Services Tax (GST)—remain a major culprit. The Carney government is currently advancing legislation that would rebate GST on some new home purchases, but only for a narrow slice of the market, falling short of what’s needed to improve affordability. A broader GST rebate, extending to more homebuyers and more new homes, would cost Ottawa more, but it would likely deliver better results than the billions the Carney government plans to spend on other housing-related programs.

Today, Ottawa already offers some GST relief for new housing: partial rebates for homes under $450,000, full rebates for small-scale rental units (e.g. condos, townhomes, duplexes) valued under $450,000, and a full rebate for large-scale rental buildings (with no price cap). Rebates can lower costs for homebuyers and encourage more homebuilding. However, at today’s high prices, these rebate programs mean most new homes, and many small-scale rental projects, remain burdened by federal GST.

The Carney government’s new proposal would offer a full GST rebate for new homes—but only for first-time homebuyers purchasing a primary residence at under $1 million (a partial rebate would be available for homes up to $1.5 million). Any tax cut on new housing is welcome, but these criteria are arbitrary and will limit the policy’s impact.

Firstly, by restricting the new GST rebate to first-time buyers, the government ignores how housing markets work. If a retired couple downsizes into a new condo, or a growing family upgrades to a bigger house, they typically free up their previous home for someone else to buy or rent. It doesn’t matter whether the new home is purchased by a first-time buyer—all buyers can benefit when a new home appears on the market.

Secondly, by limiting the GST rebate to primary residences, the government won’t reduce the existing tax burden on rental properties—recall, many small-scale projects still face the full GST burden. Extending the rebate to include rental properties would reduce costs, unlock more construction and expand options for renters.

Thirdly, because the proposed GST rebate only applies in-full to homes under $1 million, it will have little effect in Canada’s most expensive cities. For example, in the first half of 2025, 31.8 per cent of new homes sold in Toronto and 27.4 per cent in Vancouver exceeded $1 million. Taxing these homes discourages homebuilding where it’s most needed.

Altogether, these restrictions mean the Carney proposal would help very few Canadians. According to the Parliamentary Budget Officer, of the 237,324 housing units projected to be completed in 2026—the first full year of the proposed GST rebate program—only 12,903 (5.4 per cent) would qualify for the new rebate. With such limited coverage, the policy is unlikely to spur much new housing or improve affordability.

The proposed GST rebate will cost a projected $390 million per year. However, if the Carney government went further and expanded the rebate to cover all new homes under $1.3 million, it would cost about $2 billion. That’s a big price tag, especially given Ottawa’s strained finances, but it would do much more to improve housing affordability.

Instead, the Carney government plans to spend $3 billion annually on “Build Canada Homes”—a misguided federal entity set to compete with private builders for scarce construction resources. The government has earmarked another $1.5 billion per year to subsidize municipal fees on new housing projects—an approach that merely shift costs from city halls to Ottawa. A broader GST rebate would likely be a more effective, lower-risk alternative to these programs.

Finally, it’s important to note that exempting new homes from GST is not a slam dunk. GST is one of the more efficient ways for the federal government to raise revenue, since it doesn’t discourage work or investment as much as other taxes. GST rebates mean the government may increase more economically harmful taxes to recoup the lost revenue. Still, tax relief is a better way to increase housing affordability than the Carney government’s expensive spending programs. In fact, the government should also reform other federal taxes on housing-related capital gains and rental income to help encourage more homebuilding.

The Carney government’s proposed GST rebate is a step in the right direction, but it’s too narrow to meaningfully boost supply or ease affordability. If Ottawa is prepared to spend billions on questionable programs such as “Build Canada Homes,” it should first consider a more expansive GST rebate on new home purchases, which would likely do more to help Canadian homebuyers.