The hot-off-the-presses North American trade deal could be a turning point in the Trudeau government’s relationship with Canada’s business community. Clearly, the government senses the opportunity. But while the cabinet is trying to use trade peace to spread a positive economic message, there’s still work to be done to win back the hearts and minds of business.
It’s all about competitiveness, a file that is on its way to the front burner.
The government’s three top ministers – Prime Minister Justin Trudeau, Foreign Affairs Minister Chrystia Freeland and Finance Minister Bill Morneau – took to the heart of corporate Canada this week, speaking at the Fortune Global Forum in downtown Toronto, just steps from Bay Street. Mr. Trudeau went first on Monday and sandwiched his appearance at the economic conference between an exclusive interview with The Globe and Mail and a series of one-on-one meetings with chief executives.
On Wednesday, it was Mr. Morneau’s turn. In a discussion at the same conference, he laid out the three legs in a tripod of corporate “anxiety” that have been weighing down confidence and holding back business investment. One, obviously, has been trade uncertainty. Another is energy-infrastructure problems – not enough pipelines.
The third is Canada’s slipping competitive position, as the government has taken its time coming up with a policy response to this year’s sweeping U.S. corporate-tax cuts. And that’s the one that holds the most peril for Mr. Trudeau as he tries to change the narrative on his government’s relationship with business.
The government certainly has a story to tell on trade. It has always said it was in the corner of Canadian business owners and exporters; with the all-important access to the U.S. market now secured (more or less intact), it now has some serious ammunition to back up that message.
On energy infrastructure, the government can also claim it has taken major steps. It bought the Trans Mountain pipeline and expansion project to take over the push to get the West Coast oil pipeline built and Mr. Trudeau was more than happy to take some of the spotlight in the LNG Canada announcement, which landed at pretty much the same time as the trade deal. (To his interview with The Globe, Mr. Trudeau brought along Andy Calitz, the head of LNG Canada, the international partnership that will make a $40-billion investment in a massive liquefied natural gas project in British Columbia.)
Yet, the government still has to make up for lost time. Through policy moves such as the carbon-tax plan, the messy small-business tax changes in 2017, the regulatory morass that forced the Trans Mountain rescue and 14 months of walking the NAFTA-negotiations tightrope, the business community has often been deeply skeptical.
What’s ahead now is a set of changes to address the third leg in that business-anxiety tripod – competitiveness – and the timing couldn’t be better to complete the trifecta.
Mr. Morneau has been working for months on a policy package to address the U.S. tax cuts and the competitiveness disadvantages that they imply for Canada. He spent the summer consulting with business leaders, with an eye on introducing something in the fall. Nailing down the tentative United States-Mexico-Canada Agreement has nicely cleared the track for Mr. Morneau to unveil the strategy – almost certainly as part of his fall economic and fiscal update, which will probably be released within the next month.
Expectations in the business sector are probably best described as muted. Mr. Morneau has consistently resisted calls from many quarters – including the Senate banking committee, just this week – to cut the corporate tax rate. On Wednesday, he was steering the conversation toward incentives aimed at levelling the tax-policy playing field with the United States for attracting new investment. He hinted at rule changes that would allow businesses to accelerate deductions on capital investments, saving them taxes.
The government’s new push to win over business leaders may hang in the balance, perhaps even more so than the trade and energy questions, because this is the one area of the three that is pretty much entirely in the government’s court. It will show corporate Canada how far the government is willing to go to reduce their costs, provide them incentives and make their lives easier. It will tell the Canadian and global investment communities just how serious Canada is about laying the groundwork to compete with the United States for new investment.
If the government stumbles with a clumsy and underwhelming plan, the momentum it has enjoyed the past couple of weeks may fade remarkably quickly.