Business
There are smart ways to diversify our exports
From the Fraser Institute
By Philip Cross
The Bank of Canada recently cut interest rates again, with further cuts likely in response to Donald Trump’s threat to impose tariffs on Canadian exports. This continues the Bank’s reflexive turn to lower interest rates to goose growth every time the economy slows that began during the 2008 global financial crisis and reached its apex during the outbreak of the Covid pandemic when rates essentially hit their zero lower bound.
It’s time policymakers in Ottawa stop relying on easy money policies in response to every hiccup in economic growth. Lower interest rates have introduced major distortions into Canada’s economy. They have fueled excessive debt levels in all sectors of the economy, helped to create a housing bubble that will depress growth when it bursts, undermined our consensus on the usefulness of immigration when excessive demand raised the cost of shelter, and led youths to lose hope of achieving the dream of owning a home. Housing’s unsustainably large share of our economy helps undermine our potential productivity, the lack of which Bank of Canada Deputy Governor Carolyn Rogers last year called a “break the glass” emergency. However, the Bank’s own easy money policies spurs the shift of more resources to housing and encourage governments to ignore taking actions that would boost business investment and exports, the two sectors needed to improve our long-term productivity and competitiveness.
There are policy alternatives to just mechanically lowering interest rates and juicing housing demand. The silver lining in Trump’s tariff threats is they drive home to Canadians the twin follies of not diversifying our energy exports from the U.S. market and not lowering internal barriers to trade among our provinces. We witlessly ignored opportunities to move on both fronts for nearly a decade after Trump fired his opening salvo in the trade war with punitive tariffs on our aluminum and steel industries in 2017.
Energy, our leading export, depends on the U.S. market for 93 per cent of its export earnings. Canada has wasted numerous opportunities over the past decade to open overseas markets for oil and gas. The Trudeau government cancelled the Northern Gateway pipeline that would have sent Alberta crude to Asia. The proposed Energy East pipeline to send oil to New Brunswick and ultimately Europe floundered after the federal government complicated the approval process. Multiple proposals for LNG projects were rejected, although the Quebec government is reconsidering its opposition to ship natural gas from an LNG terminal in Saguenay to Europe. Quebec is not reflexively against pipelines: its former Premier Jean Charest boasts how his government oversaw one connecting crude oil imports landing at Levis to refineries in Montreal by clearly outlining the benefits to Quebecers. Restricting our oil and gas exports to the U.S. has depressed their prices, costing Canada tens of billions of dollars of lost revenue and betraying our European allies when they desperately needed alternatives to Russian natural gas supplies following its attack on Ukraine.
Meanwhile, the federal government displayed little leadership in trying to get the provinces to reduce the thicket of regulations and restrictions that impair trade within Canada. The 2017 Canada Free Trade Agreement provided a road map to potentially lower internal trade barriers, but most provinces have been reluctant to tread that path. It is the height of hypocrisy for Canadians to complain about Trump’s threatened tariffs when we tolerate internal trade barriers that are every bit as important and costly to our economy. Statistics Canada, for example, found that trade within Canada moves as if there were a 7 per cent tariff on goods moving between provinces, while trade within the U.S. flows as if there was no effective tariff.
The shock and outrage Canadians are expressing about Trump’s pending 25 per cent tariff on most exports can be channeled to our benefit. Achieving that will require governments to stop our dangerous over-reliance on low interest rates to stimulate housing. Instead, the focus should be improving our access to markets outside the U.S., which are clearly viable and profitable for goods such as oil and gas. Furthermore, if we truly believe our own rhetoric about the benefits of trade, we need to take concrete steps to liberalize trade within Canada.
Philip Cross
The Canadian Taxpayers Federation welcomes the Conservative Party’s promise to boost the basic personal amount for working seniors and calls on all parties to commit to further tax relief.
“Many seniors are working because they’re struggling to pay the bills and this tax relief will help them,” said Franco Terrazzano, CTF Federal Director. “Letting working seniors earn an extra $10,000 tax-free is a good thing and it will make their golden years more affordable.”
Today, Conservative Party Leader Pierre Poilievre announced he would expand the tax-free portion of seniors’ incomes.
Poilievre said he would “increase the basic personal amount for working seniors to $25,000, meaning seniors will be able earn an additional $10,000 of employment income tax free.”
Poilievre estimates this would “save a working senior making $35,000 a year an extra $1,300.”
The Conservative Party also promises income tax relief that would save a two-income family up to $1,800. The Liberal Party promises income tax relief that would save a two-income family up to $825.
“The best way the government can make life more affordable is to let people keep more of their own money,” Terrazzano said. “All parties should commit to further tax relief, especially for Canadian businesses which need to be competitive in the wake of American tariffs.”
From the Fraser Institute
By Jake Fuss and Grady Munro
Canadians will head to the polls on April 28 after Prime Minister Mark Carney called a snap federal election on Sunday. As the candidates make their pitch to try and convince Canadians why they’re best-suited to lead the country, Trump’s tariffs will take centre stage. But while the tariff issue is important, let’s not forget the other important issues Canadians face.
High Taxes: As many Canadians struggle to make ends meet, taxes remain the largest single expense. In 2023, the latest year of available data, the average Canadian family spent 43.0 per cent of its income on taxes compared to 35.6 per cent on food, shelter and clothing combined. High personal income tax rates also make it harder to attract and retain doctors, engineers and other high-skilled workers that contribute to the economy. Tax relief, which delivers savings for families across the income spectrum while also improving Canada’s competitiveness on the world stage, is long overdue.
Government Debt: At the end of March, Canada’s total federal debt will reach a projected $2.2 trillion or $52,094 for every man, woman and child in Canada. The federal government expects to pay $53.7 billion in debt interest costs in fiscal year 2024/25, diverting taxpayer dollars away from programs including health care and social services. The next federal government should rein in spending and stop racking up debt.
Red Tape: Smart regulation is necessary, but the Canadian economy is plagued by a costly and excessive regulatory burden imposed by governments. Regulatory compliance costs the economy approximately $12.2 billion each year, and the average business dedicates an estimated 85 days towards compliance. The next federal government should cut undue red tape and make Canada an easier place to do business.
Housing Affordability: Canadians across the country are struggling with the cost of housing. Indeed, Canada has the largest gap between home prices and incomes among G7 countries, and rents have spiked in recent years in many cities. In short, there’s not enough housing to meet demand. The next federal government should avoid policies that stoke further demand while working with the provinces and municipalities to remove impediments to homebuilding across Canada.
Collapsing Business Investment: Business investment is necessary to equip workers with the tools, technology and training they need to be more productive, yet business investment has collapsed. Specifically, from 2014 to 2021, inflation-adjusted business investment per worker fell from $18,363 to $14,687. Declining investment has helped create Canada’s productivity crisis, which has led to a decline in Canadian living standards. Clearly, Ottawa needs a new policy approach to address this crisis.
Declining Living Standards: According to Statistics Canada, inflation-adjusted per-person GDP—a broad measure of living standards—dropped from the post-pandemic peak of $60,718 in mid-2022 to $58,951 by the end of 2024. The next government should swiftly reverse this trend by enacting meaningful policy reforms that will help promote prosperity. The status quo simply will not suffice.
Tariffs are a clear threat to the Canadian economy and should be discussed at length during this election. But we shouldn’t forget other important issues that arose long before President Trump began this trade war and will continue to hurt Canadians if not addressed.
Jake Fuss
Director, Fiscal Studies, Fraser Institute
Grady Munro
Policy Analyst, Fraser Institute
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