Want to solve Canada’s investment problem? Make policy more predictable
THE CANADIAN PRESS/Adrian Wyld
A global minimum tax came into effect this month as part of Finance Minister Chrystia Freeland’s budget implementation bill.
Regardless of where you stand on key economic debates in Canada, most of us would agree there are certain fundamental principles that are necessary for sound policy making.
High on the list are consistency and predictability. Policies should be consistent over time and not change arbitrarily or work at cross purposes with other policies. Consistency and predictability give businesses, investors and individuals the conditions to plan for the future.
Another important principle: transparency. The reasoning and data behind policy decisions should be clear and accessible to the public, as well as authentic.
Too often in Canada lately, we’ve seen these core principles abandoned at the altar of political expediency, or simply jettisoned because policymakers are unwilling to make difficult trade-offs.
Earlier this month, and apparently out of the blue, British Columbia's government decided to remove most of the vehicles from its list of those eligible for a rebate of up to $4,000 under its zero emissions program.
“Not only was this change decided in great haste and without any consultation with the industry, but it contradicts the province's own ZEV ambitions,” the Canadian Automobile Dealers Association, Canadian Vehicle Manufacturers’ Association and the Global Automakers of Canada said a joint statement.
The provincial government defended the decision by citing the program’s unexpected success, which it said is driving up costs more than projected.
No predictability, no consistency.
At the federal level, we’ve seen multiple recent examples of policies that create uncertainty. Much has been written about Prime Minister Justin Trudeau’s decision to raise capital gains taxes, but perhaps the most damning of all the criticisms is that the legislation lacks fairness.
The levy is retroactive — it taxes past gains, potentially going back decades — and doesn’t just apply to future gains. It’s left investors feeling the government is simply making a play for their money at the expense of investment certainty.
The investment-undermining cash grab motif has been a recurring one for the federal government. Even in cases where policies have long been flagged, the lack of transparency around motives is creating uncertainty.
Take the implementation of a global minimum tax, which also came into effect this month as part of Finance Minister Chrystia Freeland’s budget implementation bill.
The new cross-border global tax regime — with almost 140 signatories — aims ostensibly to remove loopholes that allow multinationals to shift profits to low-tax jurisdictions. Governments are essentially giving themselves the right to tax the income their homegrown businesses earn in foreign jurisdictions.
This may sound good in theory, but in practice it means governments could undermine their own global champions by imposing on them a higher tax profile than the one faced by their competitors abroad.
Which is why many of the signatories — like the U.S. — haven’t outlined any roadmap yet, while others — like Switzerland — are moving ahead more gradually to better align their rollout with other countries.
Canada has decided to move ahead with full implementation this year. That means our multinationals will bear a much bigger tax burden than global companies headquartered in, for example, the U.S.. The lack of nuance in Canada’s rollout suggests the government is more interested in raising revenue than ensuring our largest companies are globally competitive.
Perhaps the most blatant recent example of unpredictability is the last minute ‘greenwashing’ measures adopted this month by lawmakers late in the legislative process of a government budget bill.
Lawmakers amended the Competition Act to prohibit companies from making deceptive claims about the environment. But companies say the provisions are unclear and require them to substantiate claims with an “internationally recognized methodology” that hasn’t yet been defined in the law.
The change — with almost zero consultation — now threatens to muzzle how Canadian businesses can talk about climate change. That seems like a recipe for undermining progress in Canada’s climate transition, which is in desperate need of hundreds of billions in private investment.
Consistency, predictability and transparency aren’t the only important principles for good economic policy making. Fiscal sustainability and low inflation are also critical. So is efficiency — for example, taxing Canadians in the least costly manner. And of course, we want a fair society. Sometimes trade-offs need to be made.
What is less justifiable is when governments switch from principle to principle in order to achieve political objectives.
Canada has a business investment problem that is complex and deeply rooted. No one has any easy answers. But ensuring policies are clear, reliable, and stable could go a long way.
