Canada-U.S. price gap remains despite pledges to limit it

When Finance Minister Jim Flaherty introduces the federal budget tomorrow, it will be just over a year since the Senate national finance committee reported on how he could help nudge Canadian prices closer to what they are south of the border.

Flaherty hinted strongly last week that he would do more to narrow the Canada-U.S. price gap, something that remains despite pledges to limit it. One such pledge was included in the throne speech last October. Now, it's a promise that could be harder to carry out with the Canadian dollar dropping.

As the Senate committee heard over its months of meetings, cutting tariffs — import taxes on products — is one way to deal with the difference in prices for the same products in Canada and the U.S.

There are a number of other factors that drive up Canadian prices, including labour and distribution costs, as well as taxes, but some chains are feeling market pressure to match the prices in their American stores.

Christine Olcu, vice-president and general manager of Canada for Express, says the chain was aware Canadian shoppers would see U.S. prices online and then wait to go cross-border shopping instead of picking up an item at their local mall.

Express reacted by matching the U.S. pricing in Canada.

"Our business spiked significantly and we can directly attribute it to that price-parity decision," Olcu said in an interview with CBC News' James Fitz-Morris.

It was easier to maintain the prices when the Canadian dollar was on par with the American dollar (Canadians now have to pay about 10 cents more to buy one American dollar), Olcu said, but they see a value in trying to stick with the practice.

"Simply because it costs more money to do business in Canada does not mean we can charge more money to get that product to sell," she said.

Customers now walk into stores and check the prices online, Olcu said.

"I think it's just a matter of time before people realize they can only hold the line for so long on charging the customer different prices."

Liberal Senator Joe Day, who chairs the Senate national finance committee that studied the price gap, says the market will take care of itself if the government can limit the barriers to competition.

"I am a firm believer in marketplace and competition, but then you say 'what government things are interfering with it?'" Day said.

The Senate committee recommended looking at tariffs with a view to dropping them. The tariffs are there "not to protect industry, just to raise revenue. And that, I think, is the number one issue," Day said.

It's likely Flaherty will cut more tariffs in the 2014 budget.

The Conservative government boasted in its 2013 budget that it lowered tariffs on hockey gear and other sports equipment, but the same budget raised tariffs for a number of countries, threatening increased prices for consumers on any goods made in those countries. The government also had to adjust its budget bill after it was revealed hockey helmets hadn't been included in the tariff cuts, and the Conservatives went on to deal with a raft of other products, including iPods, that faced confusing tariff rules.

The Senate committee, which took on the Canada-U.S. price gap study at Flaherty's request, recommended the tariff cut just weeks before the finance minister delivered the 2013 budget.

Earlier that day, Flaherty said the government "would like to eliminate tariffs going forward," although he also noted that as finance minister he had concerns about what that would do to federal revenue.

Day says the only way to tackle the difference is to limit the excuses for charging more in Canada than in the U.S.

"There's going to be a price gap," he said.

"The fewer things you have to look after, the better, because the internet shopping and comparative pricing will help a whole lot of these things if you can get rid of those other barriers."

Tariffs generated $3.6 billion in revenue for the government in 2010-2011, which was 1.5 per cent of total revenue collected that fiscal year.