Canada’s other Trump risk
The Canadian economy is about to be hit with a one-two punch at the hands of President Trump’s United States, and I’m not referring to a renegotiation of NAFTA, which the president said this week he would be “tweaking.” While opening NAFTA up to be picked apart and debated will prove challenging (and could still prove disastrous), what is guaranteed to harm us is Trump’s commitment to lower America’s corporate tax rate and undertake substantial regulatory reform. These two initiatives will put Canada at an extreme disadvantage in terms of investment. Astonishingly, the Canadian government is not preparing for these changes; instead, Prime Minister Justin Trudeau is pursuing policies that are essentially tying our economy’s shoelaces together before the race has even started.
Canada has spent t he last decade positioning itself as the best place in the world to do business with the biggest changes coming into effect in 2012. It was in that year that the Conservative government lowered our corporate tax rate to 15 per cent ( down from 28 per cent in 2006) and that the one- for- one rule came into effect. Recognizing that extreme regulatory burden on businesses was an impediment to growth and investment, the one- for- one rule provided that for every new regulation that imposed an administrative burden on business, one would have to be removed. Canada was the first country in the world to legislate such a rule.
And these changes produced results. Foreign direct investment into Canada skyrocketed between 2012 and 2013 while the one- for- one rule eliminated over 20 regulations from Canada’s books and saved businesses tens of millions in just the first two years of its implementation. Following the announcement of these changes, Forbes ranked Canada at the best place in the world for busi- ness and we have remained in the top 10 ever since.
But this success is at risk now for two reasons: Donald Trump and Justin Trudeau. Canada is set to lose its tax advantage in North America after the Trump administration follows through on its campaign commitment to lower America’s corporate tax rate to 15 per cent, matching ours. It is also set to undergo more stringent regulatory reform with the adoption of a two- for- one rule. Under these conditions, what business would choose to invest in Canada over America?
Add to this the increased tax and regulatory burden that the Trudeau government is placing on Canadian businesses, and you find your answer. The Liberal carbon tax has largely gone over like a lead balloon, with those in the know speculating that investment in Canada is set to plummet. Also, the Liberals’ ill-advised changes to the environmental assessment rules for energy projects that now requires applicants to calculate upstream emissions — something that virtually no other country does — has caused many investors to think twice about investing in projects, particularly in British Columbia and Alberta.
The forecast for Canada does not look promising. The reality is that our businesses will not be able to compete with the favourable conditions emerging in the United States because of the disadvantages they are facing here at home. It then is beyond all reason why the Liberal government would seek to willingly thwart the competitiveness of Canadian businesses with such new taxes and regulations, knowing that our largest trading partner will not be asking the same of their own. The prime minister needs to re-evaluate his economic strategies to reflect the new reality in which we live.