The show to the south, filled with sex scandals and political hand-wringing, is a distraction that is amusing and riveting.
By comparison, Canada’s “scandals” are light fare. Take the backlash against the tax “fairness” proposals this summer to raise taxes paid by doctors, farmers and small businesses. In fairly short order, these hikes were partially walked back, thanks in part to the pummeling dealt out to Canada’s rookie finance minister.
That aside, taxes and trade are Canada’s main challenges. But concerns and anxiety that Canada can be sideswiped by the erratic U.S. President Donald Trump are off-base. Our biggest competitive advantage is Prime Minister Justin Trudeau’s excellent relationship with Donald Trump. Besides that, the numbers show that the Canada-U.S. trade relationship is changing and in America’s favour:
• In 2016, the United States racked up an overall deficit of US$12.5 billion in goods and services over Canada, and the gap has been growing this year.
• Canada remained America’s largest goods export market in 2016 and 2017, and is one of its biggest services export markets.
• Canada’s overall current account deficit (goods, services, tourism, investment) widened in the third quarter to the second highest on record, in large measure because of a growing deficit bilaterally with the United States.
• Last year, total foreign visitors to the United States fell four per cent and has been dubbed the so-called “Trump Slump”. Visits from Mexicans were down more than nine per cent and from Britain six per cent, but visits from Canada were up nearly five per cent. Canadians continue to travel to the U.S. for business, shopping, and for pleasure.
Canada, in other words, is not a problem on the trade front with the United States. Other countries, notably China, Germany, Taiwan, Japan, and Mexico, enjoy enormous surpluses thanks to a number of factors.
But the U.S. enjoys a growing surplus over Canada which is also its biggest customer.
As for tax differentials, Canada must always be concerned if Americans reduce their taxes well below our levels, hurting our competitiveness.
Current proposals to slash U.S. corporate rates to 20 per cent are not a problem, according to a recent analysis by Scotiabank. This is because our rates are already roughly that low, thanks to years of Tory tax-cutting. Personal and sales taxes are also not an issue.
The myth is that Canadians dramatically higher taxes, but that’s not exactly true if you consider benefits received.
Consider health care.
Americans spend 18 per cent of their GDP on health care or roughly US$10,000 per capita. Canadians spend roughly 11 percent of their GDP, or US$5,000 per capita.
But up to 40 per cent of “taxes” in Canada are earmarked for health care costs which means that they are not taxes, but insurance premiums for Cadillac coverage that is unlimited and without deductibles.
This changes the comparison.
Taking OECD’s latest per capita tax figures in 2010, Americans collect US$11,365 per capita in taxes and Canadians US$14,693 per capita. But Canadian taxes included US$3,000 in health care benefits that year while most of the U.S. taxes collected was allocated to non-health care expenditures.
If taken into consideration, Canadians are not paying higher taxes than Americans do. In 2010, about US$3,000 of Canadian per capita taxes of US$14,693 went toward health care while a minuscule portion of the US$11,365 collected from Americans went to theirs.
So, the collection was probably pretty similar and the quality of life very different. That year Americans spent US$8,500 per capital on health care in addition to taxes they paid.
They indicate that, contrary to what President Trump has been saying, Americans do not pay the highest taxes in the world. They pay lower taxes than most developed countries or Canada but pay the highest health care costs in the world which makes their costs higher than most others.
Canadians should not lose any sleep over Republican deep tax cuts that have been proposed. Even if they become law, which is doubtful, Canada’s corporations will still be competitive and our citizens better off than theirs.
Americans must fix health care and Canadian governments must control spending, not raise taxes.
As for trade, Canadians have nothing to worry about. New figures show that the Americans enjoy a surplus with Canada, not a deficit, and the two will continue to enjoy the world’s most successful and harmonious partnership.