The Globe and Mail
On a late-summer evening in 2015, Liberal Leader Justin Trudeau stood on a pre-election debate podium in Calgary and laid out his economic case for Canadians to put him in the Prime Minister’s Office.
He pledged to pour federal money into rebuilding the country’s decaying infrastructure, to stimulate business productivity and growth. He said he’d get pipelines built to deliver new markets to energy exporters. He promised to create jobs and make life better for the middle class.
Nearly four years later, with his first term in office wrapping up and a fall election looming, Mr. Trudeau now finds himself preparing to defend his government’s record.
On one level, Canada’s economy is doing just fine. The jobless rate is lower than it has been in more than four decades. Wages are starting to perk up. And growth has recovered from its recent lull. In Toronto and elsewhere, the scores of construction cranes dotting the skyline suggest vibrancy.
It’s what they can’t see that worries many business leaders. It’s the money that isn’t being spent – the stalled pipelines, the delayed infrastructure projects, the new factories that aren’t being built, the chronic underinvestment by companies in technology and innovation. New trade deals have created new opportunities, but exporters are steadily losing ground in key global markets.
“It feels like the economy is doing well because unemployment is really low and we have all these trade deals,” acknowledges Nicole Verkindt, founder and chief executive of Toronto-based OMX, a tech-based procurement platform that serves the aerospace, auto, resource and construction industries.
And yet, Ms. Verkindt frets about longer-term problems, including the “slow creep” of regulation, the failure to embrace innovation and the inability to get big projects moving.
“This is Canada. We muddle through,” she says. “And that’s part of our problem. We live in an amazing country and we have this comfort level. We’ve never experienced a sense of urgency before.”
There’s a sense that this complacency has left Canada as an increasingly uncompetitive place to do business – and the urgency in the business community is growing. Yet, many are frustrated by a government they view as either slow to act or unreceptive to their needs.
“They set some pretty lofty goals,” says Michael Barrett, president and CEO of dairy processor Gay Lea Foods. “Tactically, they haven’t followed through on a lot of it.”
Chief executives see their companies as vital wealth and job creators for the country. But many say they’re not getting the love they deserve from Ottawa.
"I’m not sure this government has ever really focused on the business sector of this country – what makes it tick and what it needs,” says Ed Sonshine, CEO of RioCan Real Estate Investment Trust, one of the country’s largest real estate developers and managers. “There’s been a failure to take into account the requirements of doing business.”
“[The Liberals] have said the right things and they have made small steps. But nowhere near what we need,” says Dennis Darby, president and CEO of Canadian Manufacturers and Exporters, the main industry group for the country’s industrial sector. "You just have to travel outside of Canada and go look at other countries – they are moving at a lightning pace. We have not kept up. We risk becoming mediocre.”
As the country gears up for the election campaign, The Globe and Mail asked business leaders – more than two dozen large-company CEOs and business group heads, representing a wide range of industries and geographic regions – to help us take stock of the Liberal government’s economic performance to date. From their candid feedback, we’ve graded the government on its handling of a half-dozen key economic policy files – labour and skills, trade, innovation, infrastructure, tax policy and environmental and energy policy. Their opinions are reflected in our assessments, but the final grades are our own.
Labour and Skills (A-)
If the bottom line in any economy is jobs, then the economy under the current Liberal government is about as good as it gets. The unemployment rate is the lowest since Statistics Canada began collecting comparable data in 1976; the labour market has created 1.2 million net new jobs since this government took office. And the Trudeau government routinely takes credit – even if it’s debatable how much its policies have really contributed to the success.
From a policy standpoint, the big issue is not so much having enough jobs for workers, but having enough workers for jobs – more specifically, enough of the right skilled workers.
Employers are increasingly facing shortages of qualified candidates to fill skilled positions. Statscan recently reported the country had more than 500,000 job vacancies in the first quarter of this year – up nearly 10 per cent from a year earlier, and the 10th straight quarter vacancies have risen. The country’s aging population – a demographic slide common across the world’s advanced economies, as the huge baby-boom generation drifts into retirement – is squeezing the supply of workers and will continue to do so for many years to come.
Meanwhile, the rapidly evolving digital economy is redefining job roles and skills requirements across a widening range of occupations and industries. Many employers and economists see skills gaps as the biggest threat to business growth and the country’s broader economic prosperity.
In that light, this government’s greatest economic accomplishment might well be its immigration policy.
The Liberals have dramatically expanded on the Harper government’s economic-and-skills-focused immigration plan, increasing annual intake levels by more than 25 per cent, to about 330,000 this year – the highest in more than 100 years. Business leaders point to Canada’s open, welcoming immigration policy – with its emphasis on filling economic and skills needs – as critical in sustaining labour growth and supplying businesses with the highly skilled workers they need.
Many executives praise the government for creating a fast-track, two-week visa to bring skilled foreign workers to Canada. Tech companies in particular say the program gives them an edge over businesses in the United States, where immigration has become more restrictive in recent years. In the Trudeau/Trump era, immigration has become one of Canada’s greatest economic advantages.
The Liberals also introduced in last spring’s budget the Canada Training Benefit to provide mid-career funding for workers to upgrade their education and training every few years. The program is an encouraging early step to upgrade the skills base in the existing labour force, although some business leaders say the plan is too modest to meaningfully narrow the skills gap.
Trade (B)
Mr. Trudeau was in a triumphant mood when, as Prime Minister, he travelled to Brussels in October, 2016, to sign a free-trade agreement with Europe. Getting the deal – nearly a decade in the making – over the finish line wasn’t easy. Shuttle diplomacy by then-trade minister Chrystia Freeland helped persuade recalcitrant members of the 28-country European Union to accept new investment rules.
Mr. Trudeau promised the deal would open new doors for Canadians, with benefits flowing from “fishermen in Newfoundland and Labrador, to aerospace workers in Quebec, and from people assembling automobiles in Ontario, to forest industry workers in British Columbia to miners in the Northwest Territories.”
Adding Europe to its roster of trade agreements was a milestone. Canada is now the only country to have free-trade deals with every other Group of Seven member. Roughly three-quarters of the country’s trade is now covered by such agreements.
But the ceremony in Brussels came just days before the shock election of Donald Trump to the U.S. presidency, which would completely upend Canada’s cozy place in the world. In the two-plus years since, Ottawa’s focus has shifted from opening new doors to desperately trying to keep them from slamming in its face. It was dragged into an unwanted renegotiation of NAFTA and a tit-for-tat battle with the United States over steel and aluminum tariffs. Now, Canada is caught in the crossfire of a U.S.-China struggle for tech supremacy.
Under trying circumstances, the government has mostly avoided the worst. It navigated the tense renegotiation of the North American trade deal without giving up too much and it recently got the U.S. to remove damaging tariffs on steel and aluminum.
What Ottawa hasn’t been able to do is lift a cloud of uncertainty hanging over Canada’s investment climate. And so far, it hasn’t managed to get enough exporters to embrace the new trade opportunities available to them. Indeed, early evidence suggests other countries are doing better at exploiting those trade deals. Exports to the European Union were up 7 per cent last year – the first full year of the trade deal – but EU exports to Canada were up even more, at 10 per cent.
Through no fault of the federal government, implementation of the proposed United States-Mexico-Canada Agreement remains in doubt. And concerted efforts to get China to remove restrictions on key Canadian farm products, including canola and meat, have proven fruitless, potentially costing farmers billions of dollars in lost exports.
Innovation (B-)
The Liberals set out to make Canada a global hub for innovation. It was a lofty goal – and nearly four years later, it remains largely unrealized.
In his 2016 budget, Finance Minister Bill Morneau promised a “bold new plan.” And he talked about all the right things, including the need to help “scale up” companies, foster industrial clusters, spur more venture capital and attract world-class talent. The word “innovation” appeared 72 times in the 2016 budget and 262 times in the 2017 budget.
Unfortunately, innovation is a long game that doesn’t fit neatly into election cycles. While some of the Liberals’ good intentions are generating early returns, others remain largely aspirational.
The government, for example, committed $950-million to create five technology “superclusters” across the country. These are research alliances between governments, research institutions, companies and business groups, around such sectors as oceans, agriculture, manufacturing and artificial intelligence. The notion that governments can prod companies into doing great things together remains unproven. Three years later, the effort has spun out only a smattering of projects, although more are in the works.
Ottawa has also allocated $100-million to get government departments to use their purchasing power to support suppliers’ precommercial R&D and prototypes. And the government has poured a lot more money into basic research, particularly at the country’s universities.
But there is scant evidence these efforts are having an impact on the broader economy. Investment in R&D by Canadian companies remains weak compared with other developed countries. Likewise, the take-up of new technology by companies remains sluggish across the economy. New research by the University of Toronto’s Impact Centre finds Canada still lacks the right preconditions to turn promising ideas into world-class technology companies.
Infrastructure (C)
This week’s opening of Montreal’s new $4.2-billion Samuel De Champlain Bridge, with its minimalist piers and soaring cable suspension tower, should be a crowning achievement for the Liberals. But as with much of the government’s 10-year, $180-billion-plus infrastructure program, the government-owned bridge was late and overbudget.
Infrastructure was to have been one of the Liberals’ signature economic policies. They came to power in 2015 vowing to reinvest in the country’s neglected roads, bridges and transit system. They said it would create well-paying, middle-class jobs and generate “sustained” economic growth.
Getting the money out the door, however, has proven to be a major challenge – a problem repeatedly highlighted by the federal budget watchdog. By its own accounting, the government has “allocated” roughly a third of the money. But allocated doesn’t mean shovels in the ground. So even that estimate likely overstates the actual economic impact.
The provinces aren’t helping. Some have taken the federal cash and quietly curtailed their own infrastructure spending. The Parliamentary Budget Officer (PBO) estimates provinces spent nearly $4-billion less between 2016 and 2018 than they would have, absent the federal program. Provinces’ failure to match federal spending resulted in as many as 8,100 fewer jobs created in 2016-17 alone, the PBO said.
Ottawa has also expressed frustration about foot-dragging by provinces and municipalities in getting projects approved, leaving the government with chequebook in hand, but nothing to spend on. Mr. Morneau has singled out Ontario, Manitoba, Saskatchewan and New Brunswick as laggards. So in this year’s budget, he announced a top-up for municipalities to get around that roadblock.
Meanwhile, the $35-billion Canada Infrastructure Bank, whose mandate is to partner with private investors, has also been slow to get up and running, with just three investments to date.
Environment and Energy (D+)
There has been no more awkward and protracted policy dance for the Liberals than the one that has paired energy and the environment. Mr. Trudeau gave a deeply suspicious oil and gas industry ample justification for its distrust in early 2017, when he talked about the need to “phase out” the Alberta oil sands in a transition to an eventual fossil-fuel-free economy. His government hasn’t been able to shake its image as the enemy of the industry since.
The government’s push for a national carbon tax, while it was lauded by environmentalists and economists as a sound, market-based approach to reducing greenhouse gases, has drawn the ire of conservative-leaning provincial governments and has opened a serious rift in federal-provincial relations. Its inability to advance major pipeline projects to get Canadian oil to new markets has been blamed for crippling Alberta’s economy and undermining the country’s competitiveness and global business reputation. Two new environmental laws – Bill C-48 banning large oil tanker ships along B.C.’s northern coast, and Bill C-69 overhauling the country’s environmental review process for major resource projects – are viewed by the industry as major anti-business assaults that will stifle energy development and drive away investment.
The government took an unprecedented step in support of the industry last summer, when it spent $4.5-billion to buy the troubled Trans Mountain Pipeline from its U.S. owner and pledged to push through construction of the much-needed oil pipeline to the West Coast. That hasn’t been enough to convince the industry the government is in its corner. At the same time, the move has alienated environmental interests, who had hoped this government was serious about reducing Canada’s dependence on fossil fuels.
In all, it’s the biggest mess the government has to clean up in its attempts to marry its social agenda with its economic objectives. Of all the issues the government has dealt with since taking office, this one raises the most questions about its competence in overseeing economic strategy.
Tax Policy (D+)
Canada’s business leaders see the country’s antiquated, byzantine tax code as perhaps the biggest barrier to global business competitiveness and investment – and, by extension, the highest-priority economic issue facing the next government. They also see it as perhaps the biggest economic policy failing of the current government.
Amid increasingly loud calls for a comprehensive overhaul, the Liberals have instead nibbled around the edges of the tax problem – punctuated by clumsy attempts at making modest reforms.
The government infuriated business in its attempt two years ago to rewrite the tax rules governing small corporations, eventually backing off under a barrage of criticism that it had declared war on the country’s mom-and-pop business owners and struggling farmers. It watched Canada’s corporate-tax advantage over the neighbouring United States evaporate with the stroke of a pen last year, when Mr. Trump introduced his own sweeping tax reforms that included a sharp rate reduction and other large tax breaks for business.
Canada’s eventual response to that competitive challenge – essentially matching a U.S. move to allow accelerated expensing of capital investments (buildings, machinery, equipment and so on) – did win plaudits from the business community and helped mend some broken fences. Nevertheless, it was a measure that didn’t come close to addressing Canada’s broader tax-competitiveness challenges.
On the personal-tax side, the government’s Canada Child Benefit, effectively a tax cut for middle-class families, was a popular move and has been credited with helping address income inequality. But the government’s decision to raise the tax rates of the country’s highest income bracket has been a source of concern for big business, which sees it as an obstacle to competing for and retaining top global talent.
Toss in the carbon tax – generally accepted by the business community, yet divisive among voters and a train wreck for federal-provincial relations – and the Liberals’ performance on tax reform has not looked good. Even where the policy has been sound, the execution has been poor.
With the U.S. changes having brought Canada’s tax competitiveness into sharp focus, a growing number of business organizations – including the Canadian Chamber of Commerce and the Canadian Manufacturers & Exporters – have publicly called on the government to appoint a royal commission to conduct a thorough, independent review of Canada’s tax system. It’s high time; Canada hasn’t had such a large-scale tax review since the Carter commission, which completed its work in 1966. Yet, so far, none of the major parties has thrown their support behind the idea.
‘There’s a fragility’
As the October election nears, corporate leaders are uneasy and frustrated.
“There are certainly positive signs,” says Perrin Beatty, president and CEO of the Canadian Chamber of Commerce, a major lobbying voice for business in Ottawa. "But there’s a fragility. When I talk to members of the business community, they have very real concerns.”
Corporate leaders see a government that has nibbled around the edges of the big economic challenges facing the country, leaving Canada dangerously exposed in an increasingly uncertain world. At a time when we need to be better, we’re becoming less agile, less competitive and ultimately more vulnerable to external threats.
Worse, CEOs worry political leaders don’t get it. It isn’t just about the federal Liberals. All three major political parties appear more focused on shoring up their bases and lashing out at one another than talking about bold, long-term solutions.
Earlier this month, the Business Council of Canada addressed an open letter to federal party leaders, signed by the CEOs of more than two dozen of the country’s largest companies. In it, they urged the parties to “think big” about how to make the country more prosperous, competitive and investment-friendly. But council CEO Goldy Hyder readily acknowledges the appeal may fall on deaf ears as the campaign heats up.
“It’s hard to get people to think long term,” he laments.
RioCan’s Mr. Sonshine says governments don’t understand wealth-generation starts with a healthy business climate. His company is bit of an economic bellwether because a lot of the money Canadians earn gets spent at its more than 200 retail and residential properties. When consumers are working and confident, RioCan also thrives.
“At the end of the day, all the money comes from business,” Mr. Sonshine says. “You need a good economy to be able to do a lot of these social things that people want to do. Unfortunately, I think a lot of governments forget that.”
What they are saying
Nicole Verkindt, CEO, OMX on complacency: “The core issue in Canada is a lack of urgency. It’s not just on government. A lot of this stuff is on business, too.”
Jim Balsillie, chair, Centre for International Governance Innovation; former CEO, Research In Motion Ltd. on prosperity: “Their focus has been on distributional equity. That’s been their greatest achievement. They have to focus more on the generation of prosperity.”
Ed Sonshine, RioCan Real Estate Investment Trust on tax reform: “I think a whole re-look at the tax system has to be taken. They have to redo it to get incentives in the right places.”
Jonathan Goodman, CEO, Knight Therapeutics Inc. on infrastructure: "They’ve got to execute better. I presume in the second term, they will have figured out how to do things properly. Infrastructure really will be an enduring legacy, if it’s done correctly.”
Carol Leaman, CEO, Axonify on trade: “Dealing with the Trump government on NAFTA, all the nonsense that went on there, I think we ended up in a reasonably good place. Things could have gone way worse, and I’m not sure it could have gone much better.”
Jeff Tonken, CEO Birchcliff Energy Ltd. on energy: “They’ve abandoned energy, which is one of the drivers of the Canadian economy. We can’t get our energy to tidewater, so the energy industry is having a tough go."
With files from Megan Devlin and Brent Jang, and additional research by Joe Castaldo, Nicolas Van Praet and Rachelle Younglai