Most Canadians don’t live far away from the American border, giving them lots of opportunity to notice that prices in the United States are often lower than the prices in Canada. Which may explain why, in the 2014 budget, the federal government said it would introduce a bill to deal with this “discrimination” by giving the Competition Bureau new powers to somehow go after businesses charging prices that are too “high.” The idea was meant to show solidarity with hard-pressed Canadian consumers. What it mostly demonstrates is total ignorance about how the economy works.
But higher prices on this side of the border are something that government can do something about. That’s because, as a recent paper by University of Toronto economist Nicholas Li for the C.D. Howe Institute reminds us, much of the price gap was created by government.
Take the supply management system for several major agricultural products. It drives up the prices of staples such as eggs, milk, cheese, chicken and yogurt. Or take customs tariffs, basically extra taxes on many imported goods, and which the Harper government surprisingly raised in the 2013 budget.
Or take the fact that Canadians who cross the border and return in less than 24 hours have no customs-duty exemption on anything purchased in the U.S. If all Canadian travellers to the U.S. were given a high exemption on their purchases, retailers and wholesalers alike would face greater pressure to be more price-competitive.
The 2014 budget harrumphed, “Canadians work hard and should not be gouged with higher prices simply because of where they live.” Fair enough. But the solution doesn’t involve ordering the Competition Bureau to come up with fair prices for various goods, and then go out and find businesses charging too much. Go after a bigger culprit, and one that’s easy to identify: government policies that artificially raise prices. They’re hiding in plain sight.