Federal Finance Minister Jim Flaherty presents the budget in the House of Commons on Feb. 11, 2014CHRIS WATTIE
Jim Flaherty is vowing to legislate away the often large gap between retail prices in Canada and the United States.
"Canadians work hard and should not be gouged with higher prices simply because of where they live," according to the 419-page budget document tabled Tuesday by the Finance Minister.
It's all part of what the Conservative government calls its "consumers first" agenda.
And yet the government is unwilling, or unable, to remove many of the key structural impediments to competition in Canada, including foreign ownership rules in the telecommunications industry, persistent internal trade barriers and the protections that shelter the dairy and poultry sectors.
And so Mr. Flaherty tinkers at the margins, targeting easy wins by vowing to deal with much of the low-hanging fruit that irritates Canadians, such as high cellphone roaming rates and seemingly unfair retail pricing.
The government is promising legislation to tackle the problem of so-called "country pricing," when manufacturers charge retailers vastly higher prices in Canada than in the United States for identical products – everything from cars to cookies.
The new "framework" will enable Canada's competition watchdog to pursue companies that "use their market power to charge higher prices in Canada that are not reflective of legitimate higher costs," according to the budget document. The budget, for example, mentions the "corporate agreements" that thwart Canadian retailers from buying directly from U.S. distributors.
Canadian retailers have complained that suppliers often charge them 10 to 50 per cent more as a result of so-called "country pricing" policies, leaving them unable to sell at the lower prices offered in the U.S.
Citing various independent studies, the budget says Canadians were paying anywhere from 10 to 25 per cent more than Americans for most goods in 2011 – even after adjusting for the exchange rate and higher Canadian sales taxes.
But the budget lacked key details about how such a framework would function.
"It's beyond me how you can legislate this," said Douglas Porter, chief economist at Bank of Montreal, who regularly examines the Canada-U.S. price gap.
By targeting retail prices, however, Mr. Flaherty may be going after a problem that may already be fading on its own. The falling Canadian dollar is already discouraging cross-border shopping.
And in recent months, the Bank of Canada has highlighted the role of intense retail competition in the current bout of disinflation.
In a speech last week, the bank's top deputy governor, Tiff Macklem, warned that competition between major retailers will continue to depress retail prices "for some time." He suggested that Canadians are enjoying the fruits of cutthroat retail competition and improved productivity as Wal-Mart, Target and other U.S. chains expand across the country.
Inflation is currently running at an annual rate of less than 1 per cent in Canada, well below the central bank's 2-per-cent target.
The government is also promising to cap domestic wireless roaming rates via an amendment to the Telecommunications Act. The change would impose penalties on wireless providers who charge other service providers more than they bill their own customers for mobile voice, data and text services.
The budget document suggests the move will enhance competition in the wireless market.
Meanwhile, the government's efforts to encourage new wireless entrants to compete against the three dominant players – Bell, Rogers and Telus – have largely proved ineffective. The three companies prevailed in a recent federal auction of new wireless spectrum, entrenching their dominant market positions.
To consumers' detriment, Ottawa continues to avoid an obvious, and arguably more effective, solution – lifting foreign ownership restrictions on Canadian telecom companies. Those rules effectively preclude large and innovative foreign rivals from getting into the Canadian market.
By chasing after sexy, populist pieces of legislation, Ottawa is avoiding the tough work that will make a lasting difference for consumers.