Canada’s tax and energy advantages are coming to a sudden end, and we should expect businesses will move more investment to the U.S.
When Justin Trudeau shuffled his federal cabinet last week, it signalled he’s taking the next United States president seriously. Finding the right mix of people to work with White House officials is important. But government policies also matter. Our prime minister will need to do more to keep Canada competitive and protect Canadian jobs.
Donald Trump is ready to upend U.S. policy on everything from trade to defence treaties to immigration. But the president-elect’s domestic proposals on taxes and energy are Canada’s greater challenges.
The Trump administration intends to move quickly to cut the business tax rate from 35 to 15 per cent. Add the four per cent average corporate tax applied by state and local governments and the new U.S. tax rate could soon effectively be a cool 19 per cent, about eight points lower than Canada’s 27 per cent average when federal and provincial rates are combined.
Our country’s tax advantage is coming to a sudden end. As a result, we should expect businesses will invest more in the United States and less in Canada, where higher costs exist.
This brings us to energy. Trudeau wants all provinces to put a price on carbon, directly with a carbon tax or indirectly with cap-and-trade regulations. If the provinces don’t, Trudeau will impose a carbon tax. The impact of either strategy is the same: more expensive for Canadians to get around, heat their homes and keep the lights on. Pricing carbon will increase the cost of almost everything, including food.
A typical Canadian family will likely pay more than $1,200 a year in new energy taxes by 2022 – and twice that if Ottawa decides to apply its new tax aggressively.
Carbon pricing isn’t the only way Trudeau’s policies will raise electricity rates. His order to provincial governments to shutter coal-fired stations by 2030 will eliminate a source of cheap and reliable power from Canada’s energy mix. Here’s what that means for one small province: New Brunswick has a single coal-burning power plant and NB Power officials have said closing it would increase provincial electricity rates by a staggering 38 per cent.
Meanwhile, U.S. ratepayers face no carbon tax. And American energy costs will likely fall as Trump repeals President Barack Obama’s executive orders restricting the extraction and use of fossil fuels.
What’s Ottawa’s response to all this?
Trudeau says Canada could win if the incoming president rejects plans to make U.S. energy more expensive. He told a Calgary business audience last month, “We know that this is the way the world is going and if the United States wants to take a step back from it, quite frankly, I think we should look at that as an extraordinary opportunity for Canada and for Canadians.”
It’s a brave face – but does it make sense?
Trump’s energy policies twinned with deep tax cuts will reduce Canada’s competitiveness.
Canadian policy-makers, and the prime minister, don’t have to like this change and may privately curse it. But our federal and provincial governments can’t pretend Trump’s policy agenda won’t have any impact on the economy when Canadian jobs are at risk.
Canada’s energy sector is already concerned that government policy will soon put our country at a competitive disadvantage, and that investment and jobs will move to the U.S.
In Ontario, some businesses are already eyeing nearby U.S. states with more affordable energy prices. Ontario electricity prices have skyrocketed thanks to costly provincial regulations. Carbon pricing means bills for natural gas, gasoline and diesel are going up next. The Coalition of Concerned Manufacturers of Ontario, a group of small- and medium-sized businesses, has raised the alarm and is urging the government to reverse course or risk job losses.
Canada’s long-term growth depends on its businesses remaining competitive. Affordable energy is part of the mix, along with reasonable tax rates. Likewise, the prosperity of Canadian families is impacted by the price of home heating fuels, power and gas. Dramatic price increases leave households poorer, while inexpensive energy would mean households have more income for other things.
With Canadian energy prices set to increase relative to U.S. prices, there will soon be an additional cost to Canada’s carbon policy. That price is less investment and lost jobs. Lower U.S. taxes will only compound the problem.
Canadian workers and businesses can’t afford such a shift.
The Trudeau government’s next move should be to overhaul its carbon pricing plan to account for the policy shift south of the border. Canada needs a strategy that doesn’t penalize businesses and ordinary Canadians.
By John Williamson
John Williamson is president of Canadians for Affordable Energy.