Chartered Professional Accountants of Canada (CPA Canada) has long criticized and called for an in depth review of the Canadian tax system to ensure competitiveness and fairness. In their new report, Canada's Tax System: What's so Wrong and Why it Matters, CPA Canada criticized the current Canadian tax system for being ‘outdated and overly complex’ creating problems for people and businesses alike.
This criticism first emerged earlier in the year after the Auditor General of Canada released an audit report on the Canada Revenue Agency (CRA) slamming the agency for being ‘unfair’ on taxpayers. The two reports share similar findings.
The federal government has discovered a massive accounting blunder that has deprived more than 270,000 veterans of their disability payments. Veterans Affairs Canada has claimed that the CA $165 million shortchange is due to a miscalculation.
After the Veterans Ombudsman’s office uncovered the massive shortfall, Veterans Affairs Minister Seamus O’Regan explained the error had been caused by disability pension adjustment calculations between 2003 and 2010.
With rising economic uncertainty around Brexit, increased sparring over trade between the US and China, and much concern about the fate of a NAFTA-less world, Canada recently had the opportunity to appreciate a genuinely satisfying moment: the sound of an important piece clicking into place.
The recently devised USMCA (United States–Mexico–Canada Agreement) trade agreement will begin making its impact in 2020, assuming it passes through the approval and signing process without incident. But one of its most important functions is essentially complete already: the very existence of the trade agreement significantly eases worries around the business community, which had feared the possibility of the kind of no-deal outcome that the UK is currently on course to encounter.
A survey of auditors at the Canada Revenue Agency (CRA) has revealed that the vast majority believe Canada’s tax system favors the wealthy.
Nine out of 10 of the auditors and tax professionals polled agreed that corporations and wealthy Canadians find it easier to avoid paying taxes than the less well-off. The majority of respondents also suggested the government needs to enforce tax laws more strictly to tackle this issue.
However, the poll, which was sponsored by the union that represents tax professionals working at the CRA, received widespread criticism for being unreliable, as the respondents were all civil servants.
Real estate website Zoocasa recently revealed the unequal land transfer tax paid by homebuyers across Canada. Their research found that on top of already paying the highest housing costs in the country, Vancouver and Toronto residents also have to pay the two highest land transfer tax rates on housing purchases.
For instance, in Toronto, a repeat homebuyer would have to pay 3.1% tax, while first time buyers qualify for rebate so their tax comes to 2.1%. On an averaged priced property this comes up to CA$25,162 and CA$16,687 respectively. Either way the amount is significantly higher than in other areas of the country. What could cost more than CA$20,000 in these cities can cost as low as CA$239 in Alberta where the residents of the province do not pay a land transfer tax but instead a ‘title transfer fee’ of $0.1%, which can be as low as CA$239 for an average priced home. Despite not all governments calling it a tax, all of the provinces charge it when a real estate deal occurs.
The International Monetary Fund has given a warning saying Canada’s economy may face significant risks due to trade sanctions with the U.S. In an annual review of Canada’s economy, IMF has come out and said that Canada should have a “careful rethink of corporate taxation to improve efficiency and preserve Canada’s position in a rapidly changing international tax environment.” This would enable them to remain competitive after the U.S. decision to reduce corporate tax.
“The impact of lower corporate tax rates in the U.S. could make Canada a less attractive destination for investment,” said Cheng Hoon Lim, the IMF’s assistant director, Western Hemisphere Department.
The Canadian government is evaluating the impact of the tax cuts on Canada, but Prime Minister Justin Trudeau insists Canada remains competitive.
9th May 2018
“Canadian economy grows by leaps and bounds in all provinces last year,” proclaims a headline from 2nd May in the Financial Post, summarizing the estimated 3.3% GDP growth the country experienced in 2017. “Canada’s economy in 2017 had one of its most broad-based expansions ever, with no region recording a deterioration and GDP rising in every province for the first time since 2011,” the article continues, adding that “it’s a return to normal for Canada.”
As for the future, Bloomberg assures us that “Canada’s Economy is on Track to Emerge from a Soft Patch,” according to a recent headline, referencing a period of slow growth in January. The article notes that the oil and automotive industries are improving their economic performances, as is the rail industry, construction, goods production and overall manufacturing. “Fifteen of 20 industrial sectors recorded higher activity in February,” the article states, although it does note that the real estate sector continues to underperform.
10th April 2018
30th April has come around again, closing the door on a strong year of growth and ushering the country into a new and somewhat uncertain future. One variable that will be watched with close interest is the extent to which Canadian businesses will move south of the border to take advantage of low US corporate tax rates.
The full effect of Washington’s decision to enact new business-friendly tax laws is yet to be seen, but according to some, it is already pulling investment capital away from Canada and into the US. The situation creates a conundrum for Canadian economic planners: whether to follow the US down this path to stem the tide of departing investment money, or hold its course in hopes that Canada’s system is more stable in the long run.
26th March 2018
The Budget 2018 is here. And with it, the Liberal Minister of Finance, Bill Morneau, proposed changes to the private corporation tax reform, which was initially introduced last year. The changes are believed to benefit small businesses and will deal with investment income of private corporations.
The first component of the changes allows only businesses that earned less than $50,000 from passive investment annually to access the small business tax rate, which can be lowered to 9%. And those with passive income above the particular amount will be entitled to pay at the general corporate rate at 15%. Moreover, businesses with earnings of $150,000 or more will not be eligible for the small business deduction.
14th February 2018
Tax season is here and Canadians across the country are now filing their returns. This year, as every year, there are of course changes to the tax law. One specific trend that deserves some special attention is cryptocurrency. 2017 saw the boom of bitcoin as the digital currency exploded to a price of over US $19,000 this past December. As many Canadians jumped into the cryptocurrency market last year, and some certainly made capital gains, it is worth noting that these citizens could be liable to pay taxes for their digital transactions using the coins.
31st January 2018
Finding time to file taxes can be difficult for people anywhere. The Canada Revenue Agency (CRA) is finally deciding to make the process easier. Canadians will soon enjoy a more convenient tax filing system.
Facing widespread criticism over their service, the CRA will implement a system where low-income Canadians can file their taxes by phone. Citizens who file using paper tax forms will also enjoy added convenience, as paper tax packages will now be sent directly to their mailboxes.
23rd November 2017
A recent report by C.D. Howe Institute is making headlines across Canada. Its alarming analysis suggests young workers won’t be able to bear the financial burden of Canada’s growing elderly population. Because of this, the report notes taxes will be forced to increase in the coming decades, and the budgets of popular public services such as education, child benefits and health care will be squeezed.
What is the root cause of this issue? How much truth is there in the report? And is a tax hike really inevitable? These are questions surely on many Canadians minds. To discover the answers, Canada’s latest census reveals the facts about the country’s demographics.
How many young Canadians are there compared to the elderly?
Canada’s latest census, from May 2017, reveals that there are now more seniors in Canada than children under 14 years old. The reason for this is not surprising. The post-war baby boom juxtaposed with today’s trend of bearing fewer children is a major cause. Also, due to better health care, Canadians are living much longer lives than they did in decades past. All these factors contribute to the growing elderly population.
Are social services to blame?
Government education, child benefits and health care are a major cause for the potential tax hikes. The report asserts that the costs of these programs will increase from 15.5 percent of Canada’s GDP to 24.2 percent between 2016 and 2066.
The director of research at C.D. Howe institute, Colin Busby, had this to say about the analysis, “It’s something to be concerned about because if these programs continue to eat up a larger share of overall income in society, the prospects of having to significantly raise tax revenues in the future [are] altogether possible and feasible.”
Busby is not the only one concerned. This past May, Senator Sharon Carstairs argued that Canada is “woefully unprepared” to handle the country’s aging population. To add fuel to the flames, a Canadian Medical Association report revealed that Canada’s 65 and older population consumes around 45 percent of all health care spending, even though this demographic makes up only 15 percent of Canada’s population.
When will the effects of this problem be seen?
Busby argued that the beginning stages of this issue are already happening now. And as time passes, the problems will escalate. Busby noted, “We’re just at sort of the early stages of it right now. The big upward pressure isn’t going to hit until most of the baby boomers are starting to leave the labour force, and when they start to hit ages that really put pressure on the health care system.”
Is there a way to mitigate the problems?
While it will be difficult to avoid the tax hikes of a growing elderly population, it is not inevitable. There are a few solutions that can help avoid or decrease the negative effects. The report suggests raising the retirement age to 67 and that the government partially terminate Universal Old Age Security. Instead of providing the benefits of OAS to everyone, the program should be targeted to people who struggle without its support.
Outside of these two changes, the government will likely need to make the social services system more efficient to account for the increase in the elderly population.
23rd October 2017
When it comes to the question ‘who should pay the most in taxes’, the pervading philosophy has been to raise taxes on the wealthy. The rich have more money, so they can afford to pay a bit more. But how much do the wealthy actually pay in taxes? Are they truly paying their fair share? A recent survey by the Canadian Taxpayers Federation (CTF) aimed to address just this question.
What percentage of Canada’s taxes are paid by the wealthy?
A recent study by the CTF has revealed some surprising results. Canada’s wealthiest individuals are actually footing a large amount of the country’s tax bill. The two tax groups who pay the most in taxes are Canadians who earn over $100,000 a year (before tax) and Canadians who make more than $250,000 a year.
According to the study, Canadians who make over $100,000 pay the largest amount of Canada’s tax bill. While this group is made up of only 8.4 percent of the population, 52 percent of all Canada’s income tax was paid by this group in 2014.
Next, Canadians who earn more than $250,000 annually constitute 1 percent of the population. According to the CTF survey, this group was responsible for 21 percent of all income tax revenue collected by the federal government.
Between these two high earning groups, 73% of all Canada’s tax revenue is collected. Still, while few people will likely feel sorry for these wealthy individuals, the survey shines a light on the common argument that “the wealthy don’t pay enough tax.”
A history of high tax rates for the wealthy
As Canada’s tax system is based on the amount of money individuals earn, higher taxes on the wealthy are nothing new. However, since the Liberals took office in late 2015, they have concentrated on fulfilling their campaign promise of raising taxes on the upper class. A new income tax bracket was formed dedicated to Canadians who earned $200,000 per year or higher. This group’s tax bill was raised from 29 percent to 33 percent.
Recently Prime Minister Justin Trudeau claimed this is still not enough, falling back on the old argument that “the middle class pay too much in taxes and the wealthiest don’t pay enough” noted Mark Milke, author of the CTF study.
Milke’s study shows that this belief is simply not true, and he commented, “The middle class could always use a tax break. But it is false to say higher income Canadians do not pay their fair share.”
While the statistics revealed by the survey are surprising, the CTF may have another agenda. The group is also asserting that Canada’s taxes are too high in general, noting, “The most recent statistics from 2015 show the general revenues to all Canadian governments amounted to 38.6 percent of (gross domestic product).”
Whether or not the results of the CTF’s survey change the perception of the wealthy’s tax responsibility, is yet to be determined. Will current tax policy change? Will taxes be reduced for all Canadians? This survey may play a role in answering these questions in the coming years.
29th September 2017
After Canadian Finance Minister Bill Morneau proposed a plan for tax reforms, he received critical responses from many sectors, including those from members of the Canadian Chamber of Commerce who said he owes them an apology. The tax reform proposal, according to Morneau, is believed to close loopholes which enable wealthy business owners to avoid paying higher tax rates by incorporating themselves.
The reform’s changes
The plan included more controls on business owners’ activities, including doctors and lawyers, who avoid their high tax rate by participating in “income sprinkling” to family members in lower tax brackets.
It also aimed to put restrictions on the use of private corporations to passively invest in unrelated companies, as it may allow a person to have tax deferral advantages. Another change would limit Canadian business owners from claiming regular income of a corporation as capital gains, which are generally taxed at a much lower rate.
Voices from Chamber of Commerce members
Upon learning the news, many of the business owners say the proposed reforms, and the Liberal government in Ottawa itself, are casting a negative light on them and the minister owes them an apology.
"Whenever a process from government starts to position business people and the business community in such a negative light, it is an absolute disaster from a communications perspective and I think an apology from our federal minister to the Canadian business community would be appropriate," said Steve McLellan, CEO of the Saskatchewan Chamber of Commerce.
In addition, the concerns were expressed that the reforms could be unfair for family farmers and small business workers.
"We may very well find that it discourages entrepreneurship and investment in Canada and has damaging impacts on the Canadian economy," said Perrin Beatty, CEO of the Canadian Chamber of Commerce.
The meeting also discussed the proposal as it would impact how doctors pay their taxes and could shake up the Canadian healthcare system. As of now, medical associations on many provinces have conducted surveys on doctors’ opinions towards the change. The results are shocking.
In New Brunswick, 65% of more than 500 doctors said they would consider reducing working hours, 46% would move their practice outside of the province, and 25% would consider retiring from the profession, if the measures are implemented.
In Nova Scotia, more than half of 864 doctors would consider leaving the province if the proposal passes.
There are growing concerns that Morneau’s tax reform will largely affect the patients as the loss of only a portion of doctors in a province like Nova Scotia could impact the needs for essential healthcare services. Given that it already faces a hard time caring for the aging and sick population, the passing of this proposal could have serious repercussions.
However, Mr Morneau said he is open to all opinions including those from doctors and willing to take them into consideration.
"We're out listening to people and haven't concluded on the fiscal measures," he said.
30th August 2017
July 25th, 2017, marks the day Canadians have been paying their income tax for a century! The same day in 1917, three years into the First World War, The Conservative Finance Minister Sir Thomas White introduced Parliament to federal income tax. The purpose of the tax was mainly to increase military support.
Many Canadians thought the tax was for a temporary period, especially because it was wartime. Sir Thomas otherwise stated in his tax introduction that it was intended for one or two years after the war, then the Parliament would review the clause to determine whether it was suitable for future application. Today, Canadians still pay the income tax. But how has the tax evolved as it turns a century old?
“The tax started out as a levy on the very richest Canadians. In the early years, as few as one in 50 people paid,” wrote Professor William Watson of McGill University. He also commented that only 2.3% of the population paid the tax in 1938. However, as of today, the tax was paid by most Canadians and 75% of them also file tax returns. This means income tax makes up nearly half of the country’s federal revenue.
However, as its population and economy grow, the country needs to revisit their income tax in other perspectives. Professor Watson suggested that Canada’s income tax is “too high, too important, too complex and too costly” for the country’s current situation.
Statistically, Canadians pay for their income tax at higher rates than most US states. According to the report, seven Canadian provinces were ranked in the top 10 marginal tax rates in North America. Professor Watson also noted the difference of margins for paying at top rates, “Top rates for U.S. states start at over $500,000, in some cases almost $1.5 million. In most provinces, by contrast, the top combined federal-provincial rate starts at $200,000”.
Out of 35 OECD countries, Canada ranks fifth highest for countries that rely on income tax revenue. The federal government, together with other provinces, received more than 33% of their revenue from income tax payers nationwide, while the average of other OECD countries is less than 25%.
Other points of concern for this current income tax are that it is “too complex and costly”. According to Dr. Watson, the current income tax contains a million words which is equivalent to 1,406 pages, compared to when it first launched in 1917 (it spread to only 10 pages). More importantly, there is significant increase in tax expenditures. In 2014, Canada recorded their tax expenditures to as many as 128 while there is also a 27% increase in number. Moreover, with all the complexity, every year a Canadian family on average spends no less than a value of $500 either in time or expense to have their tax done.
According to Professor Watson, in order to have a more efficient and reasonable income tax program for everyone, Canada may have to rethink their tax system. They may have to change how people pay tax by making the base broader and the rate lower, or even considering a low but progressively rising rate on personal consumption.
27th July 2017
The notion that large corporations and the wealthy do their best to dodge taxes is nothing new. Like the tax systems of many countries, Canada has a number of loopholes that businesses and wealthy professionals have been able to exploit over the years. Now, the Canadian Government is looking to crack down on this issue.
Finance Minister Bill Morneau has proposed a plan that aims to prevent businesses from continuing a practice that has become known as income sprinkling. This legal strategy the government now looks to outlaw occurs when a business owner shifts part of their income to family members such as their children or relatives. As these individuals are not subject to the same high taxes a business has to pay, the company using this loophole is able to lower its tax bill.
The government estimates there are around 50,000 Canadian families who use this ‘income sprinkling’ strategy to their advantage. And it is not just corporations who do this. Morneau has noted, “There’s been a big increase in professionals that have been using these structures.”
Doctors and lawyers, among many other types of professionals, are some of the people Morneau claims to be participating in income sprinkling.
As with any sweeping changes made by a government body, it is certain there will be people who will be against the reforms.
“Of course, when you change things in a way that make it less advantageous for some people, they’re not going to be happy about it,” Morneau said.
Dan Kelly, the president of the Canadian Federation of Independent Business fears that if these changes pass, they will have negative repercussions on small and medium businesses. Smaller firms, especially, are more vulnerable to this type of legislation as they already face a large number of obstacles. Kelly notes that these firms must face the challenges of premium increases for the Canada Pension Plan and Employment Insurance, changes to NAFTA, as well as the difficulties brought about by a rising minimum wage.
While this tax reform will likely make it more difficult for Canadian small and medium businesses, Morneau notes there is a more important issue at stake, “I don’t want to see one small subset of the population advantaged because of our tax code, so it is about creating fairness.”
Perhaps as a testament to his belief, Morneau admits he is likely to be affected by these tax changes as well.
"I have not looked at my personal implications from these changes as we've gone through them, and I've done that on purpose because I want to make sure the system is fair and I don't want to consider my personal situation... My expectation is that these changes, over the long term, will mean that I’ll end up paying more tax." Morneau said.
Morneau firmly believes that all Canadians should have to pay their fair share of taxes, including himself.
At Accountancy Insurance, we hope to keep all our valued clients informed on the latest tax news and business trends.
25th May 2017
Two facts ought to draw close attention now that the regular tax filing season is complete.
The first is that record numbers of the highest-earning Canadians are paying no tax, according to a recent analysis by the CBC. The number is still small on a national scale – roughly 6,000 people, according to the most recent statistics made available – but it represents an increasingly visible issue in a country where many have argued that the tax laws are unnecessarily complex and vulnerable to clever accounting tactics that occasionally take advantage of original approaches to tax filing, including write-offs totaling billions of dollars each year.
The publicity alone surrounding this issue is likely to spur the Canada Revenue Agency into action, in addition to the CRA’s own recognition of the fact of lost revenue, as well as the likelihood that the Trudeau government would pressure the agency toward a more transparently equitable outcome.
The other noteworthy fact to consider is that the Offshore Tax Informant Program (OTIP) has been inundated with leads lately. The OTIP was launched in 2014, for the purpose of inviting taxpayers to report on their peers with any tips or information regarding those who are allegedly avoiding their obligation to pay taxes. The program offers the promise of rewards for those whose information leads to the collection of $100,000 or more in federal tax, and has already received hundreds of submissions.
Whatever one’s views about such a government program, the reality is that, by all accounts, the CRA is taking these submissions seriously and investigating the leads it has thus far generated. A spokesman for the CRA recently indicated that as a result of citizen submissions, the agency had initiated audits on 218 taxpayers, and reassessed upwards of $1 million in penalties and taxes.
And that’s just for tax issues related to international accounts. The program’s purely domestic analogue is far more active. In the 2016-7 financial year, reports indicate that the domestic tipline – which does not offer rewards for caught tax avoiders – has received well over 35,000 calls.
The CRA has not been shy about pursuing those it identifies as tax avoiders, as one Vancouver real estate developer recently learned to his cost. The man was recently stuck with a penalty of $300,000 for not paying GST on sales, in addition to the $203,082 he was deemed to have avoided paying in the first place.
Perhaps a third fact is also relevant to this picture of a possible increase in the number of audits to come. In an embarrassing development, the CRA has recently admitted that it sent $2 million in paychecks to former employees who were not supposed to be included on its current payroll. Moreover, this has been a recurring problem for the agency, which made similar mistakes in the past.
The upshot of all this is that the CRA has been given strong incentives to increase its frequency of demanding audits, reviews, investigations and inquiries – and that at the same time, it may well be doing so based on an imperfectly functioning database system.
5th April 2017
In stark contrast to the deregulatory flavor of the Trump administration, Canada has introduced a 2017 budget that features a strong government presence to keep watch over the economy. Put forth by Finance Minister Bill Morneau, the new budget gives accountants plenty to think about – as it attempts to tighten or close off several avenues commonly used to lower tax obligations.
Among the programs introduced or strengthened by the new budget are an ambitious 10-year, $11.2 billion affordable housing plan, expanded daycare services, job training and support, additional funding for education to prepare workers for high-tech industry developments, a national housing database, a “venture capital catalyst initiative”, and several projects to facilitate student loans.
Part of the cost of these programs will be met through raised employment insurance premiums as well as higher taxes on tobacco and alcohol, but a multi-front set of countermeasures against tax loopholes will also play a large part in ensuring a sustainable tax base moving forward.
Perhaps most notable among these is a new $523.9 million investment over the next 5 years to increase the number of government auditors and ensure compliance with financial reporting regulations moving forward. This announcement portends a new wave of tax avoidance investigation cases nationwide, and crackdowns on individuals and organizations whose tax returns are incomplete or contain errors.
The Canada Revenue Agency clearly anticipates that this proactive stance on tax evasion will reap significant additional income, estimating that the government will receive an extra $2.5 billion as a result of the CRA’s enhanced investigatory powers. The message for accountants in this new environment is surely to be as meticulous as possible, and also responsive to the new set of reporting rules summarized briefly below.
Most tax rates will remain the same over the coming year, but work-in-progress exemptions for billed-basis accounting in several professions will be disallowed. Home relocation loans and gifts of medicine will no longer be eligible for tax deductions; insurers for farmers and fishing properties will no longer enjoy tax exemption; education and disability savings plans will be subject to tax-avoidance rules; and the Public Transit Tax Credit will be discontinued. In addition, straddle transactions will no longer provide the benefit of allowing realization of a loss while an offsetting gain goes unreported.
Other common practices will be monitored for potential future action, including the shifting of funds to capital gains or portfolio investments, as well as to other family members, for the purpose of securing lower tax rates.
The government has also modified its rules on the recording of gains and losses on derivatives, proposing an elective mark-to-market regime that will clarify reporting standards for these financial instruments. Switch mutual fund corporations will be eligible for re-structuring into multiple mutual fund trusts, though restrictions do apply.
The budget contains several adjustments in other areas, and as with all accounting-related matters, close attention to detail is essential. Moreover, modifications may be made as the year progresses, although the budget’s theme of closer supervision of accounting practices is unlikely to change.
10th March 2017
Canada’s economy grew at an impressive 2.6% annualized rate through the fourth quarter of 2016, better than the US (at 1.9% growth) and significantly higher than expectations. December brought a $900+ million trade surplus to the country, its second consecutive month of a profitable trade balance. Canada’s unemployment rate has also dipped to 6.8% in January, thanks to a higher-than-expected addition of 48,300 jobs in January.
Moreover, the apparent failure of the Trans-Pacific Partnership, together with moves toward a breakdown of global trade norms thanks to victories for Brexit and Donald Trump, have prompted Canada to begin discussions with China for a possible free trade agreement, in a signal that Canada’s businesses may be looking to benefit from political turmoil in other Western countries. Many observers expect trade between Canada and Mexico to also increase if relations worsen between Mexico and the US.
A closer look, however, reveals warning signs and hints that such indicators of growth may not tell the whole story, and may suggest more optimism for the future than is actually warranted. The 2.6% rate of GDP growth from December is impressive indeed, but was largely prompted by an increase in household consumption and spending on financial services, rather than sustainable growth engines.
The Bank of Montreal reported that it made about $1.5 billion in the past 3 months, a 40% increase over the same period the previous year. Others such as the Royal Bank and CIBC also experienced double-digit growth. As Canada’s GDP enjoyed its recent 4th quarter rise, overall business investment declined by 2.1% over the same period.
The $923 million trade surplus came despite a 1% increase in imports and a 1.4% decrease in volume of exports. The bulk of the surplus came as a result of higher global oil prices, giving Canada a better profit margin on its sales. Increasing revenue numbers are all to the good, but such deep links between a country’s fortunes and world commodity prices may not always turn out so well.
Meanwhile, moves toward alternative energy systems continue to gain steam. Tesla Motors has spurred much of the auto industry toward production of electric cars, while SolarCity (owned by Tesla) is pursuing its ambitious plans to connect much of the US to solar grids. Successes here will mean replication elsewhere, as countries and consumers looking to wean themselves off of oil could see their opportunity.
Regarding employment, of the 48,300 jobs added in January, 67% of them were for part-time positions and 88% were in the services sector. Trends in Canada, as elsewhere, have seen increased participation in the “sharing economy”, coinciding with the rise of companies like Uber, Lyft and Airbnb. Between November 2015 and October 2016, 2.7 million Canadian adults reported participating in the sharing economy, whose critics complain of low wages for workers as well as a distortion of real estate prices.
Canada remains hopeful that its continued positive relationship with the US and with other world powers lead to strengthening economic numbers in the years and decades to come. As with all countries in this changing economic landscape, however, success will most likely depend on how well Canada focuses on anticipation and adaptation, as new industrial and political realities unfold around it.
(primary source: http://www.cbc.ca/news/business/canada-gdp-q4-2016-1.4006233)
25th January 2017
One of Donald Trump’s first actions as president was to remove the US from the Trans-Pacific Partnership, the controversial trade deal he criticized as a candidate, along with NAFTA. Some potential member nations are urging a resumption of talks and a new iteration of the deal, absent any US involvement, while others seem less sanguine about their hopes.
While the TPP’s future is highly questionable at this moment, it does seem certain that NAFTA will receive new scrutiny and very likely significant changes, as a revitalized focus on trade deals was a clear theme of Trump’s inauguration speech upon entering office.
The free trade agreement linking Canada, the US and Mexico has been at the center of much debate, and the economic priorities it represents have still not been accepted by its critics. The deal, like the proposed TPP and other trade deals over the years, aimed to boost trade between these countries to integrate their economies and allow business development to accelerate between them.
The most common criticisms are that such deals allow larger companies to prosper at the expense of smaller ones, that workers in the more developed countries lose jobs due to offshoring, and that the relative absence of workplace regulations in some countries (such as Mexico) increases pollution and other externalities.
Whatever the merits of NAFTA, clearly some kind of agreement needs to be in place for these countries as they move forward. For its part, the new US administration has signaled to Canada that, despite its frequent mentions of imposing tariffs in other contexts, it foresees no significant changes in the economic relationship between the two countries. The US posture toward Mexico, by contrast, may be up for realignment.
The Canadian economy – and indeed the US’s – relies heavily on positive trade outcomes between them. No country buys more American goods than Canada, which is the top purchaser of goods made in 35 of the 50 American states. In the other direction, 70% of Canadian exports go to the US – numbers that illustrate the close bond (and near-dependence) that develops between countries whose economies are tightly linked through free trade.
Given the economic ties binding the two nations, Canadian businesses on the whole will lose if the Trump administration leads the US into a recession the way that some analysts fear. It is also worth closely watching how America’s relationships change with other countries. If the Trump administration presides over a notable deterioration in trade relations with Mexico or other countries, Canadian companies may either suffer (if they use the US as a geographical intermediary for the transport of goods) or succeed by undercutting two countries whose tariffs are aimed at making each other’s goods less competitive domestically.