Years ago, it was customary for Canadian bank CEOs and other senior business executives to opine candidly to shareholders and clients on public policy challenges facing Canada. As public attitudes and moods evolved, and because of deference to political correctness and woke trends or business prudence, executives became more circumspect, and interventions diminished in frequency and depth. Speeches adopted the word salad approach of many politicians, tilting to prevailing winds of likes and dislikes, while avoiding messages that might be construed as controversial or insensitive. Refreshingly, RBC’s CEO Dave McKay broke the conventional cone of silence recently in remarks to the Canadian Club in Toronto when he declared flatly that Canada is “definitely on the wrong path” and “we’ve got to make fundamental change to get back on the (right) track.” He cited specifically the need for a more competitive tax regime and a tighter relationship with the U.S.
Moves to increase the tax rate on capital gains over a certain threshold for business and individuals may increase tax revenue by tens of billions of dollars over several years — funds a profligate government desperately needs. But these changes have been broadly condemned by many business groups, as has the phasing out of tax breaks on new business investment by allowing quicker write-offs for certain assets — a reversal of earlier measures intended to help firms better compete with the U.S. According to McKay, as an export-driven nation of 41 million, our tax policy must be “more favourable, not just equal to” the U.S. He also reported that “very senior people” in the U.S. had told him politely that they don’t believe Canada is “creating enough value,” economically. One stated “you are not serious people … about addressing the issues facing the two countries.”
Canadian policy-makers and businesses should focus more on what our most important trading partner needs from us. McKay advocated greater spending on defence and security. The U.S. relies on Canada to help defend the Arctic. As global tensions rise, most of our allies are scrambling to boost defence spending. Canada is basically standing still, ignoring specifically our obligations to NATO and our Arctic region — not a good way to impress anyone in Washington these days.
McKay also advocated a more rational approach to developing national resources projects in a timely fashion. America needs Canadian energy and critical mineral resources. Germany, Japan and India, among others, want our LNG. Yet Canada’s regulatory processes are “slowing us down.” (The average federal regulatory burden has risen 20 per cent over the past decade.) Given the obstacles, it takes several years to build a mine in Canada. Investment funds inevitably go elsewhere to more receptive markets.
He further declared that “Recent tax policy is penalizing risk takers … We start companies but then we sell really early to Americans … who come up and get this amazing (intellectual property) for free, almost.” Yet limited access to capital at home constrains our startups from sustaining growth.
Our GDP per capita will fall to a record 30 per cent below U.S. levels this year with grim implications for income growth and pay cheques. McKay suggests we should “figure out what the U.S. needs from us” and derive value from that. “We’re not in sync with the United States … As you think about what the U.S. needs, it actually lines up really well with what we are good at; we are just not getting it done.” He added bluntly that the U.S. “needs less rhetoric from Canada and just more getting stuff done.”
Canada’s youth unemployment rate (14.5 per cent in August according to StatCan) prompted McKay to add, “They are disengaging from our economy. They’re worried … that they don’t have a job. They don’t think they’re ever going to own a home.”
McKay could have added much more, namely that the well-paid public sector is the fastest growing sector of our economy. The lack of foresight and planning by the government on the recent flood of immigrants was appalling, adding more stress to our already overwhelmed housing market and health facilities. Yet no one took responsibility nor was held accountable. Despite substantial salary increases, along with bonuses, the tide of bureaucratic incompetence rolls on, unmeasured and unchallenged. Billions of dollars in subsidies for companies to build battery plants for already waning EV demand constitutes the latest example of dubious government-driven industrial policy.
The carbon tax is demonstrably not meeting expectations and yet, instead of acknowledging its folly, the federal government doubles down, as per Einstein’s definition of insanity: Doing the same thing over and over again and expecting different results. It also violates McKay’s thesis that we need a competitive tax regime with the U.S.
Our “universal” health-care system is on life support and urgently in need of reform but governments at all levels do little more than tinker on the margins, lacking the will to make substantive change. We need structural reforms that will deliver more and better care facilities.
Unquestionably, America faces daunting economic and security problems, but resilience is one of its greatest strengths, along with an unmatched record of innovation in a world whose future depends increasingly on advanced technologies.
The message that Canada should be smarter in finding ways to bolster America’s resilience and adopt its new technologies should resonate across the country. Neglecting the needs and preferences of our giant neighbour may enhance our penchant for smugness but it clashes sharply with our national interest.
Proximity to the U.S. has always been our single greatest advantage but it also breeds complacency. Simon Reisman, a pre-eminent trade negotiator, used to lament that “our country takes a lot of bruising, much of it self-inflicted.” He did his level best to draw advantage from our relations with the U.S., delivering real dividends at the time with the Auto Pact and the original Free Trade Agreement (FTA) that made Canada more prosperous and competitive. McKay would undoubtedly agree that we could use a strong dose of Reisman in our public policy today.
National Post
Derek H. Burney is a former 30-year career diplomat who served as Ambassador to the United States of America from 1989-1993.