When Justin Trudeau shuffled his cabinet last week, it signaled the prime minister is taking the next United States president seriously. Finding the right mix of people to work with White House officials is important. But government policies also matter, and Trudeau will need to do more to keep Canada competitive and protect Canadian jobs.
Donald Trump is ready to upend U.S. policy on everything from trade, to defence treaties, to immigration. But the president-elect’s domestic proposals on taxes and energy are our greater challenge.
Trump says he will move quickly to cut the business tax rate from 35% to 15%. Add in the 4% average corporate tax applied by state and local governments and the new U.S. effective tax rate could soon be a cool 19%, about eight points lower than Canada’s 27% average when federal and provincial rates are combined. Our country’s tax advantage is coming to a sudden end. If the U.S. leaps ahead of us with a lower rate, businesses will invest more there.
Trudeau wants all provinces to put a price on carbon, directly with a carbon tax or indirectly with cap-and-trade regulations. The impact is the same: more expensive for Canadians to get around, heat their homes and keep the lights on. Pricing carbon will increase the cost of almost everything, including food.
A typical Canadian family will likely pay more than $1,200 a year in new energy taxes by 2022, twice that amount if Ottawa decides to apply its new tax aggressively.
Carbon pricing isn’t the only way Trudeau plans to raise electricity rates. His order to provincial governments to shutter coal-fired stations by 2030 will eliminate a source of cheap and reliable power from Canada’s energy mix.
Meanwhile U.S. ratepayers will be spared from paying a carbon tax and that country’s energy costs will likely fall as Trump repeals President Barack Obama’s executive orders restricting the extraction and use of fossil fuels.
Trudeau says Canada could win if the incoming president rejects plans to make U.S. energy more expensive.
Trump’s energy policies twinned with deep tax cuts will reduce Canada’s competitiveness. Canadian policymakers, along with the prime minister, don’t have to like this change and may privately curse it. But our federal and provincial governments cannot pretend Trump’s policy agenda won’t have any impact on the economy when Canadian jobs are at risk.
