Can We Afford to Build Again?
Rethinking Tax, Ownership, and the Future of Nation-Building in Canada
Introduction: The Big Question
As the next parliamentary session looms, Canadians will soon be inundated with debates—both federal and provincial—that are likely to be heated, confusing, and deeply divisive. Earlier this year, voters sent a message: sovereignty matters. The electorate leaned into a more assertive stance on national control—what some commentators called an "elbows-up" approach to defending Canadian interests.
But in the months since the election, it's become clear that asserting sovereignty is far more complex than it sounds.
Is buying local strawberries really patriotic if the supply chains are foreign-owned? What exactly did Canada give up when it paused its Digital Services Tax (DST) under pressure from the United States? Did our 100% tariff on Chinese electric vehicles help or hurt us—especially when retaliatory tariffs struck western provinces’ agricultural exports like soybeans, canola, and potash? And how do we make sense of U.S. protectionism that now targets Canadian auto, steel, and copper sectors even as it calls for North American cooperation?
Canada is facing another nation-building moment. From Arctic ports and green energy corridors to housing infrastructure and military renewal, the price tags are staggering. We are told there's no money left. That our debt is too high. That social programs will have to shrink if we want to build again.
But here's the thing: we've done this before. In the decades after World War II, Canada built hydroelectric networks, the St. Lawrence Seaway, universal Medicare, and transcontinental rail and roads—all while maintaining a balanced approach to social investment.
So what changed?
Part 1: Taxing Power Then and Now
In the 1970s, corporate income tax made up about 15% of federal revenues. Today, that share has dropped to about 12%. While that difference may seem modest, it reflects a much broader shift: from taxing corporate profits to trying to attract them.
Federal corporate tax rates dropped from 36% in 1980 to just 15% by 2012. While Canada broadened the tax base by eliminating certain deductions and preferences, it also introduced an array of targeted incentives: accelerated depreciation (CCA), R&D credits, and sector-specific tax breaks.
The goal? Competitiveness. But the cost was fiscal flexibility.
What’s often overlooked is that Canadian corporations don’t just face the federal rate—they pay a combined federal and provincial rate, which generally ranges from 26% to 31%, depending on the province. This is the actual rate companies experience when calculating their tax liability.
This matters on two fronts:
It reflects the real cost of doing business in Canada.
It determines how much revenue provinces can realistically expect to fund services like healthcare and education—especially above what is covered by federal transfers.
Provinces also provide their own incentives—including refundable R&D credits, sector-specific tax relief, and accelerated depreciation schemes—that often stack on top of federal programs. This layered system means that the actual tax burden (effective tax rate) for some firms can fall well below the statutory combined federal/provincial rate. In some sectors, especially R&D-heavy or capital-intensive industries, companies may pay a single-digit percentage—or less—in net taxes after credits and deductions are applied. While these incentives aim to attract high-value investment, they also reduce fiscal capacity at both levels of government and deserve closer scrutiny.
Despite these rates, total corporate tax revenues as a share of GDP have not grown significantly—suggesting that generous incentives and deductions are reducing the effective tax burden, especially for large firms.
What's often missing from the public conversation is the scale and form of these incentives.
According to federal reports, Canada forgoes tens of billions each year through a mix of tax credits, deductions, and preferential rules—what economists call tax expenditures. In plain terms, these are tax-side subsidies: public funds spent through the tax system rather than direct programs.
The total cost of these tax-side subsidies—including both personal and corporate measures—can reach 5% to 7% of GDP.
That’s roughly $130 to $180 billion a year—comparable to the entire federal health transfer or more than double the national defence budget.
What Canada gives up in tax breaks, compared to what it spends on health and defence.
While not all of that is corporate-specific, key programs like the Scientific Research and Experimental Development (SR&ED) credit alone cost nearly $3.5 billion per year federally. Accelerated Capital Cost Allowances (ACCA), clean tech incentives, and targeted exemptions add several billion more.
And who benefits? While exact breakdowns are rarely published, analyses of SR&ED claimants and tax planning behaviour suggest that a significant share of these incentives go to large, often foreign-owned firms, especially in sectors like energy, manufacturing, and digital services.
Conservative estimate: At least 25–35% of corporate tax incentives flow to foreign-controlled firms.
In effect, we're spending billions attracting investment that doesn’t always stay rooted in Canada.
What About the Digital Services Tax?
Canada’s proposed Digital Services Tax (DST)—a 3% levy on revenues earned by large tech firms from Canadian users—was expected to raise $1 billion to $2 billion per year once fully in effect. But implementation has been paused under pressure from the United States and OECD negotiations. While the goal is a global consensus on fair taxation of multinationals, each delay puts pressure on domestic revenue options.
Without a DST or similar measure, large digital firms continue generating billions in Canadian revenue with minimal local tax liability. Over time, this undermines both fairness and fiscal capacity. The pause may be strategic—but a long-term absence of such a tax is likely unsustainable, especially if other nations move ahead.
Part 2: Who Owns Corporate Canada?
Only 1% of all Canadian firms are foreign-controlled. Yet they generate over 34% of total corporate profits. This means roughly a third of Canada’s corporate tax revenue flows from foreign-led multinationals.
While that helps the federal balance sheet, it raises a deeper question: Are we building a Canadian economy or renting one?
Foreign-Controlled vs. Canadian-Controlled (2021):
Share of Corporations: 1% vs 99%
Share of Profits: 34% vs 66%
Share of Assets: 15% vs 85%
Part 3: The Policy Shift That Opened the Gates
In 1985, Canada replaced the Foreign Investment Review Agency (FIRA) with the Investment Canada Act. The message changed from "protect Canadian control" to "welcome global capital."
Since then, the number of foreign-led firms has grown modestly, but their influence has exploded—especially in high-profit sectors like finance, mining, and digital tech. While Canada has become a magnet for investment, it has also become more dependent on decisions made outside its borders.
Part 4: What the Growth Numbers Really Say
Canada's real GDP per capita growth has slowed from over 3% in the 1960s to just 0.8% in the 2020s. At first glance, this might suggest a made-in-Canada problem.
But it isn’t.
Most OECD countries have experienced a similar decline. Aging populations, weak productivity, and underinvestment have constrained growth.
In Canada, the top contributors to this slowdown include:
Aging Workforce: ~35%
Low Productivity Growth: ~30%
Capital Underinvestment: ~25%
Labour Quality Gaps: ~10%
While corporate tax rates matter, they aren't the primary driver of eroding nation-building capacity. The real challenge is economic dynamism: our ability to foster innovation, scale productive enterprises, adapt to global shifts, and reinvest in the foundations of growth.
That includes everything from entrepreneurial capacity to infrastructure resilience, from research funding to export competitiveness.
Without dynamism, even sound fiscal policy cannot deliver meaningful, long-term prosperity.
Part 5: Building Without Selling Ourselves Short
If we want to build again, we need to ask:
How can we restore public return on private-sector subsidies?
Should we be taking equity stakes in nation-building projects, not just handing out grants?
Can we use tools like the Qualified Domestic Minimum Top-Up Tax (QDMTT) to ensure large multinational corporations pay their fair share—before profits are shifted abroad?
And crucially, how do we grow more Canadian-led multinationals who will reinvest here?
A Note on Openness vs. Ownership
This is not a call for economic nationalism in the American mold. Canada has long benefitted from trade openness, global partnerships, and investment inflows. But openness is not the same as surrender. The point is not to wall ourselves off—it’s to stop giving away hard-earned public value without a second thought.
Where other nations spin slogans about “Made in America” while quietly outsourcing gains to multinationals, Canada can lead by example: open, but intentional. Cooperative, but accountable. Global, but grounded in public interest.
Part 6: Tools, Strategies, and Bold Options
1. Should Canada reclaim equity stakes in subsidized industries?
Yes—and there is precedent.
From Petro-Canada to the Wheat Board to the new Canada Growth Fund, public equity has long been a tool for shaping markets and ensuring national interest. Instead of pure grants, Canada could adopt a model of public co-ownership or royalty-linked returns—like Norway’s sovereign wealth fund or Quebec’s Investissement Québec.
Canada’s experience with Petro-Canada is particularly instructive. Founded as a Crown corporation in 1975 and fully privatized by 2004, it was sold in stages for approximately $3.2 billion. Just five years later, in 2009, it was merged with Suncor in a deal valued at $43 billion. As of 2024, the combined Suncor entity is valued at over $60 billion—nearly 20 times the final public sale price.
This is not a partisan problem—it’s a structural one. Canada has a long history of building public assets that deliver strategic value, only to later dismantle or privatize them at undervalued rates. From the cancellation of the Avro Arrow—Canada’s world-leading aerospace project—to the sale of Petro‑Canada, and the dismantling of the Canadian Wheat Board, the pattern is clear: our nation builds long-term value, then often fails to protect it from short-term decision-making.
This isn’t about one government or ideology—it’s about the absence of durable institutional safeguards that prioritize public interest over political cycles.
Protecting Crown assets from future erosion may require:
Sunset clauses or supermajority requirements before privatization
Independent assessments of long-term public value before divestment
Legislative frameworks for public ROI benchmarks before major sales
Canada's Carney government has signaled a renewed interest in asset-building. What that will look like remains to be seen—but if we are to do it again, it must be with eyes open and intent to protect what we build.
That means resisting slow internal erosion through unqualified or ideologically driven appointments (as has been alleged in institutions like the CBC), and insisting on accountability that matches ambition.
The fact that Petro-Canada grew so dramatically in value after its sale illustrates a missed opportunity: had the public retained even a partial stake, Canadians could have shared in the long-term returns. Instead, the value built over decades was transferred to private hands just before it peaked—a cautionary example of short-term decision-making sacrificing generational value.
2. How can we grow more Canadian-led multinationals?
Canada can leverage procurement policy, scale-up funding, and IP protection to foster domestic champions. Encouraging Canadian-controlled firms to globalize—not just survive—requires:
Reducing foreign takeover risk
Linking tax credits to domestic reinvestment
Supporting anchor institutions like universities and export agencies
3. Can QDMTT and BEPS tools enhance fiscal fairness?
Yes.
Canada’s implementation of the Qualified Domestic Minimum Top-Up Tax (QDMTT) and broader Base Erosion and Profit Shifting (BEPS) actions allow it to claw back tax lost to profit shifting. But these tools must be:
Enforced rigorously
Paired with transparency reforms so that companies can’t hide taxable profits in low-tax jurisdictions
This is how we ensure global firms pay their share here, not just somewhere.
4. What ROI (Return on Investment) frameworks can evaluate public investment?
Canada lacks consistent measurement of returns on corporate incentives. A rigorous ROI framework would assess not just job creation, but also:
Wage quality
Intellectual property (IP) retention
Taxes paid
Local reinvestment
Public funds should generate public returns—financial, strategic, or social.
Conclusion: A Country Is What It Builds
If Canada wants to build for the future without gutting its present, it will need more than austerity math and tax credits. It will need a renewed compact—one where government, citizens, and corporations all contribute, and where ownership matters.
Because a nation that doesn’t own its infrastructure, its industries, or its profits may find it can’t afford to own its future either.
🔎 Companion Post:
Curious how we got here? What the Growth Numbers Really Say explains why Canada’s economy has slowed—covering real GDP per capita, productivity gaps, and why stronger growth is the foundation for public investment.
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A useful framework for policy and political discussions. In our current circumstances, I do feel our corporate and entrepreneurial sectors need to step up in their own right to create autonomous economic development. My gut rant is that this sector has been lazy, complacent and risk adverse. The sector prescriptions are for some form of benefit through a lower tax burden, regulatory change of guarantees, all with a track record of failing to deliver. I now have a better framework to be more thoughtful in my rants. Thanks.