Business
Understanding the Nature of Canada’s Fiscal and Economic Challenges
From the Fraser Institute
By Jake Fuss and Jason Clemens
” between 2016 and 2019 (pre-COVID), growth in per-person GDP (inflation-adjusted) was an anemic 0.9 percent. According to one study, among the last five pre-recession periods in Canadian history, the Trudeau period (again, 2016 to 2019) recorded the weakest economic growth “
The Trudeau government was first elected in 2015 based in part on a new approach to government policy, which promised greater prosperity for Canadians based on short-term deficit spending (totaling $25.1 billion over three years), lower taxes for most Canadians (except higher-income earners), and a more active approach to economic development (LPC, 2015). This new policy direction stood in stark contrast to the consensus of the previous 20 years (Clemens and Palacios, 2017). The result has been a marked deterioration in the country’s finances, economic stagnation, and a collapse in business investment. If Canada is to restore its fiscal and economic health, Ottawa must enact fundamental policy reform.
Government spending, taxes, and debt
The Trudeau government has markedly increased spending to finance both new programs and increases in existing programs. Federal spending (excluding interest costs) increased from $256.3 billion in 2014-15 (the year before the Trudeau government took office) to $448.2 billion in 2022-23 (an increase of 74.9 percent) (Canada, 2023a) and a projected $453.0 billion in 2023-24 (Canada, 2023b). Not surprisingly, COVID-related spending contributed to increases in 2019-20 to 2021-22. But in 2022-23 and thereafter, there is no COVID-related spending.
The federal government has used tax increases and large increases in borrowing to finance these spending increases. In 2016, the federal government increased the top personal income tax rate imposed on entrepreneurs, professionals , and business owners from 29 percent to 33 percent. Consequently, the combined top personal income tax rate (federal and provincial) now exceeds 50 percent in eight provinces (with the remaining provinces only slightly below 50 percent) and in 2022 Canada had the 5th highest tax rate out of 38 OECD countries. This represents a serious competitive challenge for Canada’s ability to attract and retain entrepreneurs, investors, skilled professionals, and businesses.
And while the Trudeau government reduced the middle personal income tax rate, it also eliminated several tax credits. The combination of the two policy changes means that 86 percent of middle-income families now pay higher personal income taxes (Palacios et al., 2022). If the analysis also includes increases to the Canada Pension Plan contribution rate, almost all Canadians now pay higher taxes.
The Trudeau government also borrowed to finance its new spending. Figure 1 contrasts the originally
planned deficits with the actual deficits incurred by the Trudeau government (excluding COVID-related
spending) from 2016-17 to 2022-23. The actual borrowing exceeds the originally planned borrowing
every year (except 2021-22), often by significant margins, due to the government’s inability to control
spending growth.
The string of deficits means federal debt (measured as gross debt) has ballooned to $1.9 trillion
(2022-23) and is projected to reach $2.4 trillion by 2027/28, fueling a dramatic growth in interest costs,
which have grown by 53.2 percent (inflation-adjusted) between 2014/15 and 2023/24 and will reach
a projected $46.5 billion in 2023/24. Interest costs now consume substantial revenue that is then unavailable for government services or tax reduction.
Simply put, Trudeau government policy changes have produced large increases in government spending, taxes, and borrowing. Unfortunately, these policy changes have not resulted in a more robust and vibrant economy.
Weak economic growth and collapsing business investment
The broadest measure of living standards is GDP per person, which calculates the total value of all goods and services produced in the economy in a given year (adjusted by the population). As illustrated in Figure 2, between 2016 and 2019 (pre-COVID), growth in per-person GDP (inflation-adjusted) was an anemic 0.9 percent. According to one study, among the last five pre-recession periods in Canadian history, the Trudeau period (again, 2016 to 2019) recorded the weakest economic growth (Clemens, Palacios, and Veldhuis, 2021). Another study found that Canada’s per-person GDP growth from 2013 to 2022 was the weakest on record since the 1930s (Cross, 2023). And per-person GDP in 2022 (inflation-adjusted) had still not recovered from the pandemic losses and was basically stagnant at 2018 levels (see figure 2).
Prospects for the future, given current policies, are not encouraging. The OECD projects that Canada will record the lowest rate of per-person GDP growth among 32 advanced economies from 2020 to 2030 and from 2030 to 2060(OECD, 2021).Countries such as Estonia, South Korea, and New Zealand are expected to vault past Canada and achieve higher living standards by 2060.
According to a recent analysis, Canada’s economic growth crisis is due in part to the decline in business investment, which is critical to increasing living standards because it equips workers with tools and technologies to produce more higher-quality goods and services. This, in turn, fuels innovation and improved productivity (Cross, 2023). There are obvious explanations for the decline in business investment including regulatory barriers, particularly related to the energy and mining sectors (Globerman and Emes, 2021), and government deficits, which imply tax increases in the future, dampening investment today. Business investment (inflation-adjusted), excluding residential construction, has declined by 1.8 percent annually since 2014.
According to a 2023 study (Hill and Emes, 2023), between 2014 and 2021, business investment per worker (inflation-adjusted, excluding residential construction) decreased by $3,676 (to $14,687) compared to growth of $3,418 (to $26,751) in the United States. Put differently, in 2014, Canadian
businesses invested 79 cents per worker for every dollar invested in the United States. By 2021, that level of investment had declined to just 55 cents per worker.
Moreover, the amount of investment in Canada by foreigners has decreased while the amount of investment by Canadians outside of the country has increased. In 2008, the two levels were roughly comparable—$65.7 billion in foreign direct investment (FDI) in Canada vs. $84.6 billion in investment by Canadians outside of the country. However, a sizeable change began in 2015; by 2022, the amount of FDI ($64.6 billion) was significantly smaller than the amount of investment by Canadians outside the country ($102.3 billion).
Finally, while Canada’s labour market has consistently demonstrated its strength and resilience, the labour market numbers hide some concerning trends. For example, between February 2020 (when the pandemic began) and June 2023, private-sector job creation (net) was fairly weak at 3.3 percent compared to 11.8 percent job growth in the government sector (Eisen, Ryan and Palacios, 2023). In other words, the recovery and growth in the private sector following the pandemic has not been as strong as expected.
Conclusion: The Path Forward
There is reason for optimism, however, since many of Canada’s challenges are of the federal government’s own making. The Chrétien Liberals in the 1990s faced many of the same challenges that we do today (Veldhuis, Clemens, and Palacios, 2011). By shifting the focus to more prudent government spending, balanced budgets, debt reduction, and competitive tax rates, the Chrétien Liberals—followed in large measure by the Harper Tories—paved the way for two decades of prosperity when Canada outperformed other OECD countries on economic growth, job-creation, and business investment.
To help foster greater prosperity for Canadians today, the federal government can learn from the Chrétien Liberals, and the Harper Tories. The rest of this series identifies policy options that can increase living standards for Canadians by repairing federal finances, improving tax competitiveness, and lowering economic barriers. These reforms could help build a more prosperous country through the creation of good jobs which would lead to rising incomes for Canadians.
Authors:
This article supplied by Troy Media.
Cutting the food tax is one clear way to ease the cost-of-living crisis for Canadians
About a year ago, Canada experimented with something rare in federal policymaking: a temporary GST holiday on prepared foods.
It was short-lived and poorly communicated, yet Canadians noticed it immediately. One of the most unavoidable expenses in daily life—food—became marginally less costly.
Families felt a modest but genuine reprieve. Restaurants saw a bump in customer traffic. For a brief moment, Canadians experienced what it feels like when government steps back from taxing something as basic as eating.
Then the tax returned with opportunistic pricing, restoring a policy that quietly but reliably makes the cost of living more expensive for everyone.
In many ways, the temporary GST cut was worse than doing nothing. It opened the door for industry to adjust prices upward while consumers were distracted by the tax relief. That dynamic helped push our food inflation rate from minus 0.6 per cent in January to almost four per cent later in the year. By tinkering with taxes rather than addressing the structural flaws in the system, policymakers unintentionally fuelled volatility. Instead of experimenting with temporary fixes, it is time to confront the obvious: Canada should stop taxing food altogether.
Start with grocery stores. Many Canadians believe food is not taxed at retail, but that assumption is wrong. While “basic groceries” are zero-rated, a vast range of everyday food products are taxed, and Canadians now pay over a billion dollars a year in GST/HST on food purchased in grocery stores.
That amount is rising steadily, not because Canadians are buying more treats, but because shrinkflation is quietly pulling more products into taxable categories. A box of granola bars with six bars is tax-exempt, but when manufacturers quietly reduce the box to five bars, it becomes taxable. The product hasn’t changed. The nutritional profile hasn’t changed. Only the packaging has changed, yet the tax flips on.
This pattern now permeates the grocery aisle. A 650-gram bag of chips shrinks to 580 grams and becomes taxable. Muffins once sold in six-packs are reformatted into three-packs or individually wrapped portions, instantly becoming taxable single-serve items. Yogurt, traditionally sold in large tax-exempt tubs, increasingly appears in smaller 100-gram units that meet the definition of taxable snacks. Crackers, cookies, trail mixes and cereals have all seen slight weight reductions that push them past GST thresholds created decades ago. Inflation raises food prices; Canada’s outdated tax code amplifies those increases.
At the same time, grocery inflation remains elevated. Prices are rising at 3.4 per cent, nearly double the overall inflation rate. At a moment when food costs are climbing faster than almost everything else, continuing to tax food—whether on the shelf or in restaurants—makes even less economic sense.
The inconsistencies extend further. A steak purchased at the grocery store carries no tax, yet a breakfast wrap made from virtually the same inputs is taxed at five per cent GST plus applicable HST. The nutritional function is not different. The economic function is not different. But the tax treatment is entirely arbitrary, rooted in outdated distinctions that no longer reflect how Canadians live or work.
Lower-income households disproportionately bear the cost. They spend 6.2 per cent of their income eating outside the home, compared with 3.4 per cent for the highest-income households. When government taxes prepared food, it effectively imposes a higher burden on those often juggling two or three jobs with limited time to cook.
But this is not only about the poorest households. Every Canadian pays more because the tax embeds itself in the price of convenience, time and the realities of modern living.
And there is an overlooked economic dimension: restaurants are one of the most effective tools we have for stimulating community-level economic activity. When people dine out, they don’t just buy food. They participate in the economy. They support jobs for young and lower-income workers. They activate foot traffic in commercial areas. They drive spending in adjacent sectors such as transportation, retail, entertainment and tourism.
A healthy restaurant sector is a signal of economic confidence; it is often the first place consumers re-engage when they feel financially secure. Taxing prepared food, therefore, is not simply a tax on convenience—it is a tax on economic participation.
Restaurants Canada has been calling for the permanent removal of GST/HST on all food, and they are right. Eliminating the tax would generate $5.4 billion in consumer savings annually, create more than 64,000 foodservice jobs, add over 15,000 jobs in related sectors and support the opening of more than 2,600 new restaurants across the country. No other affordability measure available to the federal government delivers this combination of economic stimulus and direct relief.
And Canadians overwhelmingly agree. Eighty-four per cent believe food should not be taxed, regardless of where it is purchased. In a polarized political climate, a consensus of that magnitude is rare.
Ending the GST/HST on all food will not solve every affordability issue but it is one of the simplest, fairest and most effective measures the federal government can take immediately.
Food is food. The tax system should finally accept that.
Dr. Sylvain Charlebois is a Canadian professor and researcher in food distribution and policy. He is senior director of the Agri-Food Analytics Lab at Dalhousie University and co-host of The Food Professor Podcast. He is frequently cited in the media for his insights on food prices, agricultural trends, and the global food supply chain.
Troy Media empowers Canadian community news outlets by providing independent, insightful analysis and commentary. Our mission is to support local media in helping Canadians stay informed and engaged by delivering reliable content that strengthens community connections and deepens understanding across the country.
Business
Deadlocked Jury Zeroes In on Alleged US$40 Million PPE Fraud in Linda Sun PRC Influence Case
A jury of New Yorkers will return to court Monday, heading into their second week of deliberations in a landmark foreign-agent and corruption trial that reaches into two governors’ offices, struggling to decide whether former state official Linda Sun secretly served Beijing’s interests while she and her husband built a small business and luxury-property empire cashing in on pandemic-era contracts as other Americans were locked down.
On Thursday — the fourth day of deliberations — the jury sent federal Judge Brian Cogan a blunt note saying they were deadlocked on the sprawling case, in which the federal government has asked jurors to accept its account of a complex web of family and Chinese-community financial transactions through which Sun and her husband allegedly secured many millions of dollars in Chinese business deals channeled through “United Front” proxies aligned with Beijing.
The defense, by contrast, argues that Sun and her husband were simply successful through legitimate, culturally familiar transactions, not any covert scheme directed by a foreign state.
“We deeply feel that no progress can be made to change any jurors’ judgment on all counts,” the panel wrote Thursday. “There are fundamental differences on the evidence and the interpretation of the law. We cannot come to a unanimous decision.”
Cogan reportedly responded with a standard “Allen charge” — an instruction often used in deadlock situations, urging jurors to keep an open mind and continue deliberating. Because a juror had to be replaced due to travel commitments, the reconstituted panel will need to restart deliberations from square one on Monday.
According to a message the U.S. Justice Department sent to The Bureau on Wednesday, the panel had already asked for transcripts from four witnesses — Sean Carroll, Mary Beth Hefner, Karen Gallacchi and Jenny Low.
Those requests underline just how dense the case is — and how much money was at stake in the pandemic-era PPE deals at the heart of several key counts. Sun and her husband, businessman Chris Hu, face 19 counts in total, including Sun acting as an unregistered foreign agent for the People’s Republic of China; visa-fraud and alien-smuggling charges tied to a 2019 Henan provincial delegation; a multimillion-dollar pandemic PPE kickback scheme; bank-fraud and identity-misuse allegations; and multiple money-laundering and tax-evasion counts.
Carroll and Hefner’s testimony is central to the government’s key procurement-corruption allegation. Prosecutors say Sun used her influence to help steer more than US$40 million in PPE contracts to companies tied to her husband in China, with an expected profit of roughly US$8 million — money they allege was partly kicked back to Sun and Hu and funneled through accounts opened in Sun’s mother’s name and via friends and relatives.
Prosecutors say the clearest money trail in the Sun case runs through New York’s COVID PPE scramble and a pair of Jiangsu-linked emails.
“What was Linda Sun’s reward for taking official action to steer these contracts through the procurement process? Millions of dollars in kickbacks or bribes. It was money that she knew would be coming her way if she pushed these contracts through,” prosecutor Alexander Solomon told jurors in closing.
He argued that in March 2020, as the pandemic hit, a Jiangsu provincial official in Albany emailed state staff, including Sun, with information on four Chinese PPE and medical suppliers — and that the next day Sun forwarded herself a second email that copied the language about two of those vendors but added a new line claiming that “High Hope comes highly recommended by the Jiangsu Department of Commerce.”
A New York State IT specialist testified that this exact phrase appears only once in the state’s entire email system, in Sun’s self-forwarded message. Prosecutors urged jurors to see it as a fabricated email.
They suggest it is one of a number of frauds and forgeries, including claims that Sun repeatedly faked Governor Kathy Hochul’s signature on invitation letters used to bring Chinese provincial officials into the United States as part of plans to build a large education complex in New York.
On the PPE dealings, prosecutors say that during a period when Sun still had broad latitude to vet vendors, she sent procurement official Sean Carroll a proposal for High Hope to supply five million masks.
Prosecutors say she did not disclose that High Hope was tied to family associate Henry Hua or that she had a financial interest in the deal, but did repeat language that the company “came recommended” by Jiangsu authorities — phrasing Carroll testified he understood as an official validation from the Chinese side.
Prosecutors then linked the High Hope contracts that moved through Carroll’s office to alleged downstream cash flows laid out in a Chris Hu spreadsheet: PPE contract money Hu recorded as owed by Jay Chen, marked as wired into an account called “Golden” and then on to “HC Paradise,” the vehicle Hu allegedly used to pay for a Hawaii property.
In the government’s telling, that is how a doctored Jiangsu government “recommendation” for High Hope ultimately turned into New York taxpayer funds helping to buy a Hawaiian condo.
As The Bureau has reported in detail, prosecutor Alexander Solomon used his closing argument to give jurors one of the clearest open-court narratives yet of how the Chinese Communist Party’s United Front allegedly seeks to shape Western politics through diaspora networks — and to argue that Sun sat at the center of such a network in Albany.
Solomon walked the panel through a cast that ran from Sun’s family and business partners in Queens to United Front–linked association bosses in New York, provincial officials in Henan and Guangdong, and senior staff at China’s New York consulate. In his account, Sun — officially feted in Beijing as an “eminent young overseas Chinese” after a 2017 political tour — became a “trusted insider” who quietly repurposed New York State letterhead, access and messaging to serve Beijing’s priorities on Taiwan, Uyghurs and trade, while keeping that relationship hidden from her own colleagues.
Among the most striking elements of the government’s case, as The Bureau reported from Solomon’s summation, were that Sun allegedly forged Hochul’s signature on multiple invitation letters that Chinese officials then used to secure U.S. visas for provincial delegations — promising meetings in Albany that, Solomon said, no one in state government had actually approved — as part of a broader push by Henan Province to anchor a major education complex in the United States.
He then tied that influence narrative to money: millions in lobster-export deals for Chris Hu, allegedly greased by Chinese officials and New York-based United Front intermediaries; coded “apple” cash drop-offs funneled through third-party accounts; and the pandemic PPE contracts.
In Solomon’s formulation, all of that adds up to clandestine agency for Beijing.
He told jurors that while Sun was boasting to Chinese consulate officials that she could treat Hochul “like her puppet,” she was acting “like an agent,” treating PRC officials as her “real bosses,” and seeking and receiving benefits. Sun kept doing so, Solomon said, even after an FBI agent warned her about the Foreign Agents Registration Act and the risks of working too closely with the consulate.
Defense lawyers for Sun and Hu, in their own summations, urged the jury to reject that picture of a couple monetizing their access to senior American politicians in order to enrich themselves through clandestine business dealings facilitated by community leaders secretly working for Beijing’s United Front units. According to the Global Investigations Review summary and other accounts, they argued that prosecutors have overreached by criminalizing ordinary diaspora politics, networking and pandemic procurement.
On the defense view, much of what the government calls “direction and control” is better understood as routine back-and-forth involving a diaspora liaison in the governor’s office and community or trade groups with ties to China. None of the government’s evidence, they argue, amounts to an agreement to operate under the “direction or control” of a foreign principal — the core FARA requirement.
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