Canadian Business Warns Trudeau on Rising Cost of Climate Plan

  • PM and provincial premiers urged to improve competitiveness
  • Climate policy without other tax cuts could ‘suffocate’ firms

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Canada’s climate-change plan and other government measures are heaping costs on businesses and pushing them to a breaking point, the Chamber of Commerce says in a warning to Prime Minister Justin Trudeau.

Chamber President Perrin Beatty, in a letter Tuesday, asked Trudeau to find ways to cut business costs to offset the impact of an emissions plan that includes a minimum carbon price beginning next year. Failure to do so could mean “seriously undermining Canada’s competitiveness,” he said.

“The cost of doing business in Canada is rising,” Beatty said in the letter, which was also sent to the country’s provincial premiers. “Our members are deeply worried about their ability to both grow their businesses within Canada or compete for investment and customers from abroad.”

Environment Minister Catherine McKenna responded to the letter by saying the government is already “putting competitiveness and growth for the middle class at the heart of policy-making.” McKenna cited employment growth in the Canadian economy -- 350,000 jobs in the past 12 months -- while saying businesses are hiring “because they’re confident in our plan” for growth. She thanked the Chamber for its “support for climate action.”

“The strongest economies of the next century will be those that nurture business transition and attract companies that want to invest in climate committed jurisdictions,” the minister said in a statement, adding she speaks often with businesses “who don’t see this global shift as a competitiveness problem, but rather as a cutting-edge opportunity.”

‘Suffocate’ Warning

A cocktail of new regulations, taxes, climate measures and pension changes are having a “serious cumulative impact,” Beatty said. The business community supports measures to tackle climate change but argues they should be accompanied by cutting costs elsewhere, he said. High labor costs, low productivity growth, electricity rates and employment insurance changes are also raising costs. “If we don’t give Canadian businesses breathing room, many will suffocate,” Beatty added in a press release.

In Ontario, where the government recently announced a proposed increase of the minimum wage to C$15 per hour by 2019, the self-assurance of smaller firms has already been shaken. June data from the Canadian Federation of Independent Business shows the barometer index, a measure of business confidence, fell 10.2 points to 58, the biggest monthly decline since 2008. Nationally, the index dropped 5.2 points, the most in almost six years.

The proposed changes in Ontario drove the decrease in business sentiment across Canada, and are “adding considerable uncertainty over future operating conditions,” Ted Mallett, chief economist at the CFIB, said in the report. The association releases July business barometer statistics on Thursday.

The Chamber’s warning comes ahead of upcoming negotiations on the North American Free Trade Agreement and amid U.S. President Donald Trump’s plans to cut taxes and regulations. Canadian “concern becomes even more substantial when we see the determination of the U.S. administration to dramatically cut both regulation and business taxes in that country,” Beatty wrote.

Climate change is one of the foremost policy differences between Trump and Trudeau. The president pulled the U.S. out of the Paris agreement last month, while Trudeau continues to champion it at home and abroad.

“The solution is not to ignore climate change, but to proceed in a way that makes sense for Canada’s economy,” Beatty said. “We believe that the negative impact of carbon pricing mechanisms on competitiveness can be minimized if they are designed with competitiveness in mind and offset by cost reductions in other areas.”

Trudeau’s climate plan kicks in next year, though Canada’s most populous provinces already have either a cap-and-trade regime or a carbon tax. Beatty urged Trudeau and the premiers to discuss competitiveness at their next meeting.

(A previous version of this story corrected the name of the CFIB’s chief economist in the eighth paragraph.)

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