But, according to Wildeboer and others, what threw the competitive challenges into stark relief were the U.S. tax changes championed by President Donald Trump. For years, Canada boasted much lower corporate levies. That edge has vanished. The U.S. rate tumbled to about 26 percent from 39 percent—including what states take—compared with Canada’s combined rate of roughly 27 percent.
The U.S. move sparked an intense bout of reassessment of what is disparaged by some as hipster economics. After years of focus by provincial and federal Liberal governments on issues such as income inequality, diversity and the environment—with Prime Minister Justin Trudeau winning international plaudits for his efforts in these areas—a chorus is demanding that more attention be paid to old-fashioned economic growth.
Canadians have to answer some tough questions, said Don Walker, chief executive officer of Aurora, Ontario-based Magna International Inc., North America’s largest auto supplier. “Do we want to be a capitalist country, where you’re attracting the capital and you’re building businesses and hiring people? Or do we want to be more socialist, where the government gets bigger, spends more money, puts us into this huge debt, which is going to burden future generations and makes it less competitive to do business here?”
The answer, he said, should be obvious. He has a fair number of backers, such as Ron Mittelstaedt, CEO of Waste Connections Inc., which acquired Progressive Waste Solutions Ltd. for about $8 billion in 2016 and moved its headquarters from Texas to Vaughan, just north of Toronto—part of a wave of so-called tax inversions executed to take advantage of Canada’s then-lower tax bill.
‘A SOCIALIZED NATION’
While Mittelstaedt has no intention of moving the company back, he said high capital gains taxes on families selling businesses have killed 10 to 12 deals for Waste Connections in the past 18 months and are a major inhibition to deal activity. Canada, he said, is “effectively a socialized nation.”
That’s hardly considered a slam by everyone in the country. In Trudeau’s view, certainly, progressive policies such as open immigration and environmental protection are advantages that many investors recognize. U.S. tech companies, including Amazon.com Inc. and Alphabet Inc.’s Google have recently boosted hiring in Canada. Toyota Motor Corp. is putting C$1.4 billion ($1.1 billion) into two plants west of Toronto so it can build hybrid sports utility vehicles, with the federal and Ontario governments each contributing C$110 million to the program.
The economy is, in many ways, doing just fine. Unemployment has held at 5.8 percent for three straight months, the lowest in records stretching back to 1976. The central bank has raised interest rates three times since July, citing an economy close to its capacity. Crude oil climbed to $70 a barrel, boosting incomes in such provinces as Alberta and Newfoundland.
For all that, foreign direct investment plunged last year to its lowest level since 2010, mostly because companies that include Royal Dutch Shell Plc and ConocoPhillips pulled out of the oil sands. The merchandise trade deficit stood at a record C$4.1 billion in March. And Kinder Morgan Inc. is threatening to pull out of a C$7.4 billion pipeline expansion from Alberta’s oil sands to British Columbia’s west coast unless political bickering over the project can be sorted out.
In the economic heartland of Ontario, weariness with liberalism is lifting the prospects of Doug Ford, a Trump-like populist who is leading in some polls to replace incumbent Kathleen Wynne as premier of the most populous province. (He’s the brother of the late Rob Ford, who as Toronto’s mayor gained unfortunate fame for being videotaped smoking crack-cocaine.)
WAGES ‘A MASSIVE PROBLEM’
Ontario recently executed the biggest overhaul to its labour code in years, extending vacation and emergency leave and tightening rules governing shift work and casual pay. The minimum wage will jump to C$15 (US$11.65) in 2019; it’s US$9.25 in Michigan.
Kimberly Long, CEO of Reprodux Ltd. in Toronto, called the wage hike a “massive” problem. “The speed at which it went up was extremely hard,” said Long, whose printing company employs about 120 and can win or lose contracts over a half-a-cent difference per unit. “Not only that, but all your suppliers and vendors, they have increased their prices because of their wages.”
For others, the cost of power is the issue. The Ontario Liberal government shut the province’s coal plants in 2014 in the largest single reduction of carbon emissions on the continent, and sunk billions into refurbished nuclear plants and subsidized wind and solar power. Large industrial users in Toronto and Ottawa saw prices rise 53 percent and 46 percent, respectively, from 2010 to 2016, according to the Fraser Institute, a public policy research institute.