Canadian Economy Faces Call for Tax and Structural Reforms Amid Slow Growth, Say Major Banks

Toronto, Canada | EcoPulse24

According to Bloomberg, leading economists at Canada's largest banks have called on Prime Minister Mark Carney's government to implement comprehensive tax reforms, warning that measures in the recent budget will not be enough to pull the economy out of stagnation and low competitiveness.

At a Canadian Club of Toronto event, Beata Caranci, Chief Economist at TD Bank, described the current policies as a mere "first step," noting they focus more on correcting previous mistakes than creating new economic momentum. She argued the tax system discourages companies from expanding and increasing profits.

Carney's November budget pledged to attract CAD 1 trillion in public and private investment over five years through tax incentives and targeted spending on housing, infrastructure, and defense. However, economists pointed out that many proposed tax changes are inherited from the previous government, limiting their true impact.

Jean-François Perrault, Chief Economist at Scotiabank, called the trillion-dollar investment target unrealistic under current conditions, stating that it would require doubling investment levels - a goal unsupported by the existing tax and regulatory environment. Nevertheless, he acknowledged that partial achievement of the target could still benefit the economy.

Caranci highlighted a key tax issue: small business tax benefits end at CAD 500,000 in profits, prompting many companies to deliberately remain below this threshold. She advocated for at least linking this cap to inflation. Perrault agreed, emphasizing that the tax and regulatory system acts as a competitive barrier rather than an incentive for growth.

The Bank of Canada has previously warned of a "vicious cycle" where weak productivity reduces investment, deepening long-term challenges. Economists argue that breaking this cycle requires deeper structural reforms beyond short-term stimulus spending.

On energy, Stéfane Marion, Chief Economist at National Bank of Canada, noted slow progress in easing regulatory constraints on pipelines to the West Coast. He stressed Canada needs a faster and bolder approach to building such projects, rather than waiting a decade for results.

This push comes amid rising geopolitical pressures, especially after US moves to access Venezuelan oil, increasing calls within Canada to diversify energy export markets. However, Caranci warned that unwinding restrictions on Venezuelan oil will take years, while global oversupply remains the most urgent challenge.

These positions reflect a rare consensus among top bank economists that Canada needs real tax and structural reform, not just temporary incentives. Without addressing distortions hindering business growth and productivity, Canada risks missing a crucial opportunity to revitalize its economy in a highly competitive and rapidly changing global landscape.