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Estonia’s solution to Canada’s stagnating economic growth

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From the Fraser Institute

By Callum MacLeod and Jake Fuss

The only taxes corporations face are on profits they distribute to shareholders. This allows the profits of Estonian firms to be reinvested tax-free permitting higher returns for entrepreneurs.

new study found that the current decline in living standards is one of the worst in Canada’s recent history. While the economy has grown, it hasn’t kept pace with Canada’s surging population, which means gross domestic product (GDP) per person is on a downward trajectory. Carolyn Rogers, senior deputy governor of the Bank of Canada, points to Canada’s productivity crisis as one of the primary reasons for this stagnation.

Productivity is a key economic indicator that measures how much output workers produce per hour of work. Rising productivity is associated with higher wages and greater standards of living, but growth in Canadian productivity has been sluggish: from 2002 to 2022 American productivity grew 160 per cent faster than Canadian productivity.

While Canada’s productivity issues are multifaceted, Rogers pointed to several sources of the problem in a recent speech. Primarily, she highlighted strong business investment as an imperative to productivity growth, and an area in which Canada has continually fallen short. There is no silver bullet to revive faltering investment, but tax reform would be a good start. Taxes can have a significant effect on business incentives and investment, but Canada’s tax system has largely stood in the way of economic progress.

With recent hikes in the capital gains tax rate and sky-high compliance costs, Canada’s taxes continue to hinder its growth. Canada’s primary competitor is the United States, which has considerably lower tax rates. Canada’s rates on personal income and businesses are similarly uncompetitive when compared to other advanced economies around the globe. Uncompetitive taxes in Canada prompt investment, businesses, and workers to relocate to jurisdictions with lower taxes.

The country of Estonia offers one of the best models for tax reform. The small Baltic state has a unique tax system that puts it at the top of the Tax Foundation’s tax competitiveness index. Estonia has lower effective tax rates than Canada—so it doesn’t discourage work the way Canada does—but more interestingly, its business tax model doesn’t punish investment the way Canada’s does.

Their business tax system is a distributed profits tax system, meaning that the only taxes corporations face are on profits they distribute to shareholders. This allows the profits of Estonian firms to be reinvested tax-free permitting higher returns for entrepreneurs.

The demand for investment is especially strong for capital-intensive companies such as information, communications, and technology (ICT) enterprises, which are some of the most productive in today’s economy. A Bank of Canada report highlighted the lack of ICT investment as a major contributor to Canada’s sluggish growth in the 21st century.

While investment is important, another ingredient to economic growth is entrepreneurship. Estonia’s tax system ensures entrepreneurs are rewarded for success and the result is that  Estonians start significantly more businesses than Canadians. In 2023, for every 1,000 people, Estonia had 17.8 business startups, while Canada had only 4.9. This trend is even worse for ICT companies, Estonians start 45 times more ICT businesses than Canadians on a per capita basis.

The Global Entrepreneurship Monitor’s (GEM) 2023/24 report on entrepreneurship confirms that a large part of this difference comes from government policy and taxation. Canada ranked below Estonia on all 13 metrics of the Entrepreneurial Framework. Notably, Estonia scored above Canada when taxes, bureaucracy, burdens and regulation were measured.

While there’s no easy solution to Canada’s productivity crisis, a better tax regime wouldn’t penalize investment and entrepreneurship as much as our current system does. This would allow Canadians to be more productive, ultimately improving living standards. Estonia’s business tax system is a good example of how to promote economic growth. Examples of successful tax structures, such as Estonia’s, should prompt a conversation about how Canadian governments could improve economic outcomes for citizens.

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Automotive

Auto giant shuts down foreign plants as Trump moves to protect U.S. industry

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MXM logo  MxM News

Quick Hit:

Stellantis is pausing vehicle production at two North American facilities—one in Canada and another in Mexico—following President Donald Trump’s announcement of 25% tariffs on foreign-made cars. The move marks one of the first corporate responses to the administration’s push to bring back American manufacturing.

Key Details:

  • In an email to workers Thursday, Stellantis North America chief Antonio Filosa directly tied the production pause to the new tariffs, writing that the company is “continuing to assess the medium- and long-term effects” but is “temporarily pausing production” at select assembly plants outside the U.S.

  • Production at the Windsor Assembly Plant in Ontario will be paused for two weeks, while the Toluca Assembly Plant in Mexico will be offline for the entire month of April.

  • These plants produce the Chrysler Pacifica minivan, the new Dodge Charger Daytona EV, the Jeep Compass SUV, and the Jeep Wagoneer S EV.

Diving Deeper:

On Wednesday afternoon in the White House Rose Garden, President Trump announced sweeping new tariffs aimed at revitalizing America’s auto manufacturing industry. The 25% tariffs on all imported cars are part of a broader “reciprocal tariffs” strategy, which Trump described as ending decades of globalist trade policies that hollowed out U.S. industry.

Just a day later, Stellantis became the first major automaker to act on the new policy, halting production at two of its international plants. According to an internal email obtained by CNBC, Stellantis North American COO Antonio Filosa said the company is “taking immediate actions” to respond to the tariff policy while continuing to evaluate the broader impact.

“These actions will impact some employees at several of our U.S. powertrain and stamping facilities that support those operations,” Filosa wrote.

The Windsor, Ontario plant, which builds the Chrysler Pacifica and the newly introduced Dodge Charger Daytona EV, will shut down for two weeks. The Toluca facility in Mexico, responsible for the Jeep Compass and Jeep Wagoneer S EV, will suspend operations for the entire month of April.

The move comes as Stellantis continues to face scrutiny for its reliance on low-wage labor in foreign markets. As reported by Breitbart News, the company has spent years shifting production and engineering jobs to countries like Brazil, India, Morocco, and Mexico—often at the expense of American workers. Last year alone, Stellantis cut around 400 U.S.-based engineering positions while ramping up operations overseas.

Meanwhile, General Motors appears to be responding differently. According to Reuters, GM told employees in a webcast Thursday that it will increase production of light-duty trucks at its Fort Wayne, Indiana plant—where it builds the Chevrolet Silverado and GMC Sierra. These models are also assembled in Mexico and Canada, but GM’s decision suggests a shift in production to the U.S. could be underway in light of the tariffs.

As Trump’s trade reset takes effect, more automakers are expected to recalibrate their production strategies—potentially signaling a long-awaited shift away from offshoring and toward rebuilding American industry.

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Business

‘Time To Make The Patient Better’: JD Vance Says ‘Big Transition’ Coming To American Economic Policy

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JD Vance on “Rob Schmitt Tonight” discussing tariff results

 

From the Daily Caller News Foundation

By Hailey Gomez

Vice President JD Vance said Thursday on Newsmax that he believes Americans will “reap the benefits” of the economy as the Trump administration makes a “big transition” on tariffs.

The Dow Jones Industrial Average dropped 1,679.39 points on Thursday, just a day after President Donald Trump announced reciprocal tariffs against nations charging imports from the U.S. On “Rob Schmitt Tonight,” Schmitt asked Vance about the stock market hit, asking how the White House felt about the “Liberation Day” move.

“We’re feeling good. Look, I frankly thought in some ways it could be worse in the markets, because this is a big transition. You saw what the President said earlier today. It’s like a patient who was very sick,” Vance said. “We did the operation, and now it’s time to make the patient better. That’s exactly what we’re doing. We have to remember that for 40 years, we’ve been doing this for 40 years.”

“American economic policy has rewarded people who ship jobs overseas. It’s taxed our workers. It’s made our supply chains more brittle, and it’s made our country less prosperous, less free and less secure,” Vance added.

Vance recalled that one of his children had been sick and needed antibiotics that were not made in the United States. The Vice President called it a “ridiculous thing” that some medicines invented in the country are no longer manufactured domestically.

“That’s fundamentally what this is about. The national security of manufacturing and making the things that we need, from steel to pharmaceuticals, antibiotics, and so forth, but also the good jobs that come along when you have economic policies that reward investing in America, rather than investing in foreign countries,” Vance said.

WATCH:

With a baseline 10% tariff placed on an estimated 60 countries, higher tariffs were applied to nations like China and Israel. For example, China, which has a 67% tariff on U.S. goods, will now face a 34% tariff from the U.S., while Israel, which has a 33% tariff, will face a 17% U.S. tariff.

“One bad day in the stock market, compared to what President Trump said earlier today, and I think he’s right about this. We’re going to have a booming stock market for a long time because we’re reinvesting in the United States of America. More importantly than that, of course, the people in Wall Street have done well,” Vance said.

“We want them to do well. But we care the most about American workers and about American small businesses, and they’re the ones who are really going to benefit from these policies,” Vance said.

The number of factories in the U.S., Vance said, has declined, adding that “millions of workers” have lost their jobs.

“My town [Middletown, Ohio], where you had 10,000 great American steel workers, and my town was one of the lucky ones, now probably has 1,500 steel workers in that factory because you had economic policies that rewarded shipping our jobs to China instead of investing in American workers,” Vance said. “President Trump ran on changing it. He promised he would change it, and now he has. I think Americans are going to reap the benefits.”

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