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Economy

Government services faltering despite Ottawa’s tax hikes

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4 minute read

From the Fraser Institute

By Matthew Lau

Compare this growth of almost 50 per cent to the growth rate of private-sector employment—from 2015 to 2023, combined growth for the private sector and self-employment was about 11 per cent.

According to a study published by the Fraser Institute, 44.6 per cent of the average family’s income will be consumed by taxes of all kinds in 2024. Thus June 13—which is 44.6 per cent of the way through the year—was “Tax Freedom Day.” In other words, on average, the work done and income earned from January 1 to June 12 is consumed by government. This tax bill, most Canadians believe, is too high, but alas a tax-happy federal government is unlikely to provide relief.

Indeed, the Trudeau government recently made another effort to push Tax Freedom Day further back into the year with its increase to capital gains taxes, adding to its long record of tax increases since coming to office in 2015. The list of tax hikes includes a new top income tax bracket in 2016, the carbon tax first imposed in 2019 and increased every year since, five consecutive annual Canada Pension Plan tax hikes from 2020 to 2024, special taxation of financial institutions imposed in 2022, continued threats of special taxation of grocery stores, and announced plans for a tax on share buybacks.

With such enthusiasm for tax hikes, it cannot be a surprise that since the Trudeau government took office in 2015, the number of employees at the Canada Revenue Agency increased from around 40,000 to almost 60,000 by 2023. Compare this growth of almost 50 per cent to the growth rate of private-sector employment—from 2015 to 2023, combined growth for the private sector and self-employment was about 11 per cent.

But alas, all these new taxes and government growth have not yielded positive results. From the third quarter of 2015 to the first quarter of 2024, growth in real GDP per-person (a common indicator of living standards) was less than 1 per cent cumulatively versus nearly 16 per cent in the United States. The productivity improvements that deliver sustainable economic growth rely on business investment, but that has badly stalled in Canada, too. Since the third quarter of 2015, real business investment in machinery, equipment and non-residential structures is down about 19 per cent on a per-person basis.

Nor have Canadians received improved government services as a result of higher taxes.

Health access is getting worse, with wait times for medical care continuing to increase. And even the Liberals have effectively admitted their national child-care program, which they began implementing in 2021, has created widespread shortages.

Similarly, on two core federal government functions—public safety and national defence—even as Canadians pay new and higher taxes, outcomes are dismal. Crime is rising and Canada’s military readiness is “dangerously inefficient.” In fact, at the end of last year the commander of the Royal Canadian Navy said it “faces some very serious challenges right now that could mean we fail to meet our force posture and readiness commitments in 2024 and beyond” and that “the air force and the army are facing similar challenges.”

And Canada’s passport offices continue to be in a state of disarray and the federal government has missed its own deadline for allowing Canadians to renew passports online.

Polling data show Canadians believe they pay too much tax. No one should be surprised. The Trudeau government’s new and higher taxes have contributed significantly to the country’s stagnating economy and declining business confidence, and have been accompanied by deteriorating government services across the board. Raising taxes won’t make things any better. Cutting taxes would.

Business

Trump: China’s tariffs to “come down substantially” after negotiations with Xi

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Quick Hit:

President Trump said the 145% tariff rate on Chinese imports will drop significantly once a deal is struck with Chinese President Xi Jinping, expressing confidence that a new agreement is on the horizon.

Key Details:

  • Trump said the current 145% tariff rate on China “won’t be anywhere near that high” after negotiations.
  • He pointed to his relationship with Xi Jinping as a reason for optimism.
  • The White House said it is preparing the groundwork for a deal, and Treasury officials expect a “de-escalation” of the trade war.

Diving Deeper:

President Donald Trump on Tuesday told reporters that the steep tariff rate currently imposed on Chinese imports will come down substantially after his administration finalizes a new trade deal with Chinese President Xi Jinping. While the current level stands at 145%, Trump made clear that number was temporary and would be adjusted following talks with Beijing.

“145 percent is very high. It won’t be that high, it’s not going to be that high … it won’t be anywhere near that high,” Trump said from the Oval Office, signaling a shift once a bilateral agreement is reached. “It will come down substantially, but it won’t be zero.”

The tariff, which Trump previously described as “reciprocal,” was maintained on China even after he delayed similar penalties on other trading partners. Those were cut to 10% and paused for 90 days to allow room for further negotiation.

“We’re going to be very nice. They’re going to be very nice, and we’ll see what happens. But ultimately, they have to make a deal because otherwise they’re not going to be able to deal in the United States,” Trump said, reinforcing his view that the U.S. holds the leverage.

Trump’s remarks come as markets remain wary of ongoing trade tensions, though the White House signaled progress, saying it is “setting the stage for a deal with China.” The president cited his personal rapport with Xi Jinping as a key factor in his confidence that an agreement can be reached.

“China was taking us for a ride, and it’s not going to happen,” Trump said. “They would make billions a year off us and build up their military with our money. That’s over. But we’ll still be good to China, and I think we’ll work together.”

Treasury Secretary Scott Bessent also said Tuesday that he expects a cooling of trade hostilities between the two nations, according to several reports from a private meeting with investors.

As the 90-day pause on other reciprocal tariffs nears its end, Trump emphasized that his team is prepared to finalize deals quickly. “We’ve been in talks with many, many world leaders,” he said, expressing confidence that talks will “go pretty quickly.”

White House Press Secretary Karoline Leavitt added that the administration has received 18 formal proposals from other countries engaged in trade negotiations, another sign that momentum is building behind Trump’s broader push to restructure global trade in favor of American workers and businesses.

(Li Xueren/Xinhua via AP)

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2025 Federal Election

Next federal government should end corporate welfare for forced EV transition

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From the Fraser Institute

By Tegan Hill and Jake Fuss

Corporate welfare simply shifts jobs and investment away from other firms and industries—which are more productive, as they don’t require government funding to be economically viable—to the governments’ preferred industries and firms, circumventing the preferences of consumers and investors. And since politicians spend other people’s money, they have little incentive to be careful investors.

General Motors recently announced the temporary closure of its electric vehicle (EV) manufacturing plant in Ontario, laying off 500 people because its new EV isn’t selling. The plant will shut down for six months despite hundreds of millions in government subsides financed by taxpayers. This is just one more example of corporate welfare—when governments subsidize favoured industries and companies—and it’s time for the provinces and the next federal government to eliminate it.

Between the federal government and Ontario government, GM received about $500 million to help fund its EV transition. But this is just one example of corporate welfare in the auto sector. Stellantis and Volkswagen will receive about $28 billion in government subsidies while Honda is promised $5 billion.

More broadly, from 2007 to 2019, the last pre-COVID year of data, the federal government spent an estimated $84.6 billion (adjusted for inflation) on corporate welfare while provincial and local governments spent another $302.9 billion. And crucially, these numbers exclude other forms of government support such as loan guarantees, direct investments and regulatory privileges, so the actual cost of corporate welfare during this period was much higher.

Of course, politicians claim that corporate welfare benefits workers. Yet according to a significant body of research, corporate welfare fails to generate widespread economic benefit. Think of it this way—if the businesses that received subsidies were viable to begin with, they wouldn’t need government support. So unprofitable companies are kept in business through governments’ support, which can prevent resources, including investment and workers, from moving to profitable companies, hurting overall economic growth.

Put differently, rather than fuelling economic growth, corporate welfare simply shifts jobs and investment away from other firms and industries—which are more productive, as they don’t require government funding to be economically viable—to the governments’ preferred industries and firms, circumventing the preferences of consumers and investors. And since politicians spend other people’s money, they have little incentive to be careful investors.

Governments also must impose higher tax rates on everyone else to pay for corporate welfare. In turn, higher tax rates discourage entrepreneurship and business investment—again, which fuels economic growth. And the higher the tax rates, the more economic activity they discourage.

GM’s EV plant shut down once again proves that when governments try to engineer the economy with corporate welfare, workers will ultimately lose. It’s time for the provinces and the next federal government—whoever it may be—to finally put an end to this costly and ineffective policy approach.

Tegan Hill

Director, Alberta Policy, Fraser Institute

Jake Fuss

Director, Fiscal Studies, Fraser Institute
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