Canada Must Be Bold to Compete in a Crumbling Global Economy

Canada's economic prosperity relies heavily on its relationships with the United States, its most important trading partner, but the US is retreating inward, making life more expensive for exporters and undermining stability. Meanwhile, authoritarian actors like China and Russia are taking advantage of a crumbling international system, seeking to establish a new economic order. To stay competitive, Canada needs to be bold and make itself attractive to divert capital, brains, and innovation away from rival markets.

Key Takeaways:

• Canada's productivity record is terrible, lagging behind its G7 allies for decades, with the gap continuing to widen.
• Canadian companies invest fewer dollars per worker in technology, equipment, and research than their rivals, resulting in less productive workers and lower wages.
• The ultimate issue is not a shortage of talent or capital, but too little investment, which can be addressed by eliminating the capital gains tax.
• Critics argue that eliminating the capital gains tax would disproportionately benefit the wealthy, but this vision is short-sighted, as the true beneficiaries would be Canadian businesses and workers.
• A surge of new capital would mean more startups, more expansion, and ultimately, more jobs.
• Reducing or eliminating capital gains taxes would send a message, balancing the drag of US tariffs with a source of international capital.
• The reform must be guided by principle, ensuring that the benefits are directed towards like-minded partners from rules-based economies, and not corrosive investment from authoritarian regimes.
• By aligning tax reform with values, Canada can position itself as a beacon for high-quality, principled investment.

Statistics:

• Canada's productivity record has lagged behind its G7 allies for decades, with the gap continuing to widen.
• Canadian companies invest fewer dollars per worker in technology, equipment, and research than their rivals (10% vs. 20% in the US).
• The growth slowdown from discouraging investment is enormous, and abolishing capital gains taxes would unleash a gusher of risk capital into startups, scale-ups, and infrastructure projects.
• The tax base would eventually widen as a result of unleashing higher productivity and stronger growth.
• Over time, the reform would pay for itself and then some, by generating more income and consumption tax revenues.

Sources:

• Jonathan Berkshire Miller, "Canada Must Be Bold to Compete in a Crumbling Global Economy," Globe and Mail, 2021, [Source: Globe and Mail columnist who co-founded Pendulum Geopolitical Advisory].