Editorial Cartoon by Graeme MacKay, The Hamilton Spectator – Tuesday September 18, 2018
Trudeau’s to-do list just got bigger
If stalled pipelines and deadlocked trade talks have given Justin Trudeau a pounding head, he should brace himself — and Canada — for an absolute economic migraine.
Two sobering new reports warn that, unless Canadian governments take fast, aggressive action, this country’s economy will be hammered by a one-two combination of recently lowered American taxes and a sharp decline in business investment.
This is bad news for Canadians and comes at a sensitive time for our economy, as well as the prime minister.
Parliament resumes sitting this week and with the next federal election barely a year away the Liberals are working overtime to persuade everyone these are sunny days, economically speaking.
But the free-trade deal with the United States and Mexico, which has sustained millions of Canadian jobs and enriched the Canadian economy for decades, could collapse at any moment.
Meanwhile, Ottawa’s plan to expand the Trans Mountain Pipeline — which it bought for $4.5 billion in taxpayers’ money — is going nowhere.
Now more storm clouds darken our horizon. A new report commissioned by the Business Council of Canada concludes the latest tax cuts in the United States could devastate Canada’s economy.
How bad could it get? The report suggests the damage could exceed the economic harm that would be caused by the end of the North American Free Trade Agreement.
years, businesses in Canada benefited from a corporate-tax advantage. That suddenly ended last December when the U.S. Congress passed tax reforms that slashed the federal corporate tax rate to 21 per cent from 35 per cent.
The report warns America’s tax cuts could cost Canada up to 635,000 jobs and reduce its annual gross domestic product by $85 billion — the equivalent of nearly five per cent of our economy. As governments could lose up to $20 billion a year in tax revenues, almost everyone in Canada would suffer.
The challenge to our economy from these tax cuts becomes even more serious when placed in the context of a growing reluctance to invest in Canada. A report released last week by the C.D. Howe Institute called weak capital spending a “threat to Canada’s future prosperity.”
Echoing the think-tank’s fears, the chief executive officer of the Canadian Imperial Bank of Commerce, Victor Dodig, last week cited falling levels of foreign investment in Canada as he called on the country to set clearer rules to boost investor confidence.
Evidence from Statistics Canada gives credence to these concerns. In 2017, foreign direct investment in Canada declined for the third year in a row, dropping by a whopping 26 per cent.
It would be a mistake to consider any of these economic challenges in isolation. The failure to build a pipeline to carry Alberta’s oil to an ocean port where it can be sold for a higher price is surely convincing foreign investors to avoid Canada the way they would a patch of poison ivy.
Likewise, lowered American tax rates make that country a more desirable place to invest — once again to Canada’s disadvantage.
So far, Trudeau’s Liberals have dithered in their response to the U.S. tax cuts and investor flight. That vacillation must end.
In his economic update this fall, federal Finance Minister Bill Morneau should offer concrete ways to improve this country’s ability to compete and make it more attractive for investment.
That may or may not bring corporate tax cuts and changes to regulations. It must translate into meaningful action. (Source: Hamilton Spectator Editorial)