Canadian economic issues to watch as Parliament resumes

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The economy is expected to be front and centre on Parliament Hill in the coming months as the minority Liberal government finds itself under pressure from both the left and right following the collapse of a support agreement with the NDP. Here are the key economic issues that are likely to draw attention during the fall sitting, which began Monday.

Trade battles heating up

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Trade is shaping up to be one of the hottest economic issues on the Hill this fall. Not only is Canada already embroiled in disputes with its biggest trading partners, but the potential election of Donald Trump to a second term as U.S. president in November could unleash a new wave of United States protectionism with significant ramifications for the economy.

Last January, the Trudeau government renewed its “Team Canada” strategy to prepare for the possibility of escalating trade tensions with the U.S. Industry Minister François-Philippe Champagne, International Trade Minister Mary Ng and Canadian ambassador to the U.S. Kristen Hillman have held several meetings with stakeholders and U.S. government officials at the state level, to ensure Canadian trade interests remain top of mind. But whether that is enough to discourage protectionist sentiment south of the border remains to be seen.

There are already several simmering trade disputes with the current U.S. administration that could come to a head this fall.

Chief amongst them is the federal government’s digital services tax, which imposes a three per cent levy on companies that provide digital services to Canadians and would apply to major U.S. tech giants, such as Netflix Inc. and Alphabet Inc.‘s Google.

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U.S. trade representative Katherine Tai has made the U.S. government’s opposition to this tax clear and has requested dispute settlement consultations with Canada under the CUSMA agreement. This request is the first step towards the potential implementation of retaliatory tariffs, if no solution between the two parties is reached.

Trade tensions have also started to escalate with China. Canada recently announced a 100-per cent tariff on Chinese-made electric vehicles and 25 per-cent tariffs on Chinese steel and aluminum, in line with similar tariffs implemented by the Biden administration this past spring. The federal government has also launched consultations on further tariffs on Chinese-made battery parts, semiconductors, solar products and critical minerals, which will end on Oct. 10.

China in response has announced a one-year investigation into Canadian rapeseed imports, which could lead to trade restrictions.

All eyes on Mark Carney

With dismal productivity figures, a housing crisis and preliminary data that points to slumping economic growth in the third quarter, the federal government is under pressure to provide an answer to Canada’s economic challenges. Enter Mark Carney.

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After much speculation about his political ambitions, the former governor of the Bank of Canada and the Bank of England was hired this month to chair a “leader’s task force” on economic growth, which will attempt to chart a path forward for the Liberals.

It’s not clear what advice Carney will provide to the governing party, but his comments at the Liberal caucus retreat last week suggests he will emphasize strong industrial policy and bolstering Canada’s standing as a willing trade partner.

Carney is also a strong proponent for a carbon-free economy, which he calls a “key driver of competitiveness.” Last week, Conservative house leader Andrew Scheer called Carney’s appointment a “smoke and mirrors gimmick” and called Carney and Trudeau “out of touch elites” who will not bring better results on the Canadian economy.

Taxing questions

Tax policy will continue to be under the spotlight this fall. The future of the carbon tax has become more uncertain in recent weeks, with NDP leader Jagmeet Singh refusing to commit to keeping the carbon rebate in his party’s platform following the end of their supply and confidence agreement with the Liberals.

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“We want to see an approach to fighting the climate crisis where it doesn’t put the burden on the backs of working people, where big polluters have to pay their fair share,” Singh said last week.

Conservative leader Pierre Poilievre has continued to oppose the carbon tax and has promised to introduce a non-confidence motion at the earliest opportunity to trigger a “carbon tax election.”

Recent changes to the capital gains tax are also still proving controversial. The federal government has increased the inclusion rate on capital gains realized over $250,000, from one half to two thirds, for individuals, and all gains realized by corporations. The new changes came into effect in June.

Business groups continue to express their criticism, even after Finance Canada broadened the eligibility for businesses that could be included in the exemptions.

Who can solve the housing crisis?

No issue has the attention of Canadians like the high cost of housing. The Liberals have been under fire for fanning the flames  through lax immigration policies that have allowed in more people than the market can bear. While they have tried to tighten up some of those policies in recent week, housing clearly remains a focus.

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The government signalled its importance Monday, marking the Parliamentary return with a new suite of mortgage measures that will expand the number of buyers who can qualify for mortgage insurance and extend the maximum amortization period for certain homebuyers.

The Conservative Party has been critical of the federal government on this file and have proposed withholding federal funds from municipalities that fail to increase homebuilding by 15 per cent annually, selling off 15 per cent of federal buildings for housing and encouraging municipalities to cut red tape on housing construction.

NDP leader Jagmeet Singh, meanwhile, has promised to table a bill this fall banning corporations from buying affordable apartments.

• Email: jgowling@postmedia.com

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