Canada’s beleaguered economy has an $80-billion-a-year stimulus injection sitting right in front of it, and it won’t cost its governments a penny to pick it up. They won’t have to raise taxes to pay for it. They’ll actually make money from it – lots of it.
What would it take?
“One weekend,” former Bank of Canada governor Stephen Poloz told an online forum last week.
It would have to be a heck of a weekend. Removing Canada’s largely indefensible barriers to interprovincial trade would require a rare collective political goodwill among provincial premiers, and serious leadership from Ottawa.
But if the COVID-19-imposed economic carnage and government debt explosion aren’t enough to convince provincial leaders to roll up their sleeves for a couple of days to drain the protectionist quagmires, I don’t know what will.
“Politics is the art of the possible. I see no reason why this isn’t possible,” Mr. Poloz said.
The event at which Mr. Poloz spoke – the True North Free Trade Forum – was an initiative by the Ontario government to kick-start the conversation among provincial governments and business leaders. Every province was represented at the forum – evidence that, at least in principle, there is a national consensus that interprovincial trade liberalization is a no-brainer.
“I think everybody understands how much unlocked potential there is,” Ontario Minister of Economic Development Vic Fedeli, who hosted the event, said in an interview last week.
An oft-cited 2019 paper from the International Monetary Fund, co-authored by University of Calgary economist Trevor Tombe, estimated that administrative barriers to trade of goods across provincial borders cost the country the equivalent of 4 per cent of annual gross domestic product. As Mr. Poloz pointed out, removing them would create more than $2,000 per person of new income, and generate about $20-billion in additional tax revenue, each and every year.
“Everyone in the country would get a raise, instead of higher taxes,” Mr. Poloz said.
While tariffs between provinces are prohibited under the terms of Confederation, provinces still throw up walls of regulations, government procurement restrictions and licensing requirements that drive up the cost and complication of doing business across provincial borders. Statistics Canada has estimated those barriers are equivalent to a nearly 7-per-cent tariff.
Yet a paper last week from the Montreal Economic Institute noted that since the provinces signed the Canadian Free Trade Agreement in 2017 – a pact many had hoped would form the groundwork for a meaningful opening of provincial borders – most provinces have done little to nothing to reduce these trade barriers.
The agreement contains a long list of “exceptions” for each province that allow them to maintain certain barriers. Two provinces – Alberta and Manitoba – decided to unilaterally eliminate most of their remaining exceptions, but the rest of the country has not been eager to join them.
The pandemic has created a compelling reason to get eager. It has seriously accelerated the need for provinces to unlock economic growth, create new jobs and, critically, lift their tax revenues.
“The potential gains could make the difference in the post-COVID economic recovery, especially with the deficits of certain provinces reaching record heights since the start of the crisis,” the MEI report said.
Mr. Fedeli is certainly saying the right things about the postpandemic importance of clearing the path of interprovincial trade. He describes the True North forum as evidence Ontario is “taking the initiative on expanding internal trade right across the country.”
Yet when discussing details, Mr. Fedeli talks about making bilateral, province-to-province agreements on harmonizing regulations in specific sectors, and about keeping the conversation going at a ministerial level. He’s not eager to discuss doing what Alberta did, and unilaterally dropping Ontario’s CFTA exceptions. The words “first ministers’ meeting” don’t leave his lips, even when prompted.
He’s certainly not giving off a nation-building “one weekend” vibe. If Ontario was willing to kick-start the conversation, leadership in bringing the provinces to the table will have to come from elsewhere.
The obvious place for that would be Ottawa’s doorstep. Where, unfortunately, this issue – once a high priority for the Liberal government – has gotten lost in the COVID-19 shuffle.
The Liberals promised in their 2019 election platform to “take bold steps to make free trade within Canada a reality.” Prime Minister Justin Trudeau identified the task as a top priority for his most important cabinet minister, Chrystia Freeland.
Then the pandemic happened, and priorities shifted dramatically. Interprovincial trade wasn’t even mentioned in last November’s 237-page fall economic statement.
That’s a major policy omission for a government that talks a lot about its commitment to a strong postpandemic economic rebuild. It’s high time for Ottawa to rediscover its former zeal to lead this cause, and to push for a first ministers’ meeting on interprovincial trade soon. Mr. Poloz’s vision of the possible isn’t going to happen without that leadership.
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