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Freeland to call for joint federal-provincial effort to counter Biden's tax credits

Deputy Prime Minister and Finance Minister Chrystia Freeland addresses a crowd at the Empire Club of Canada in Toronto on June 16, 2022. Federal officials warn Canada can't afford to go toe-to-toe with the U.S. on tax credits meant to boost investment. (The Canadian Press - image credit)
Deputy Prime Minister and Finance Minister Chrystia Freeland addresses a crowd at the Empire Club of Canada in Toronto on June 16, 2022. Federal officials warn Canada can't afford to go toe-to-toe with the U.S. on tax credits meant to boost investment. (The Canadian Press - image credit)

When finance ministers meet in Toronto today, they'll hear both an update on the country's economic outlook and a pitch from Deputy Prime Minister Chrystia Freeland on the need for a shared response to the competitive challenges posed by the United States.

"This is not a space where the federal government can act alone," a senior government official told CBC News. "There are no guarantees of success and as a country we are going to need to up our game."

The challenge comes primarily from the measures in the Biden administration's Inflation Reduction Act, which cleared the U.S. Congress last year. It includes uncapped tax credits designed to unleash investment to accelerate the transition to a cleaner economy south of the border.

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Last fall, a senior federal finance department official called the tax credits a "game-changer for climate transition" and warned they would amount to "a gravitational black hole" drawing capital to the U.S. at the expense of Canada and other countries.

Freeland tabled an initial response to those challenges in last fall's economic statement — tax credits for clean energy capital costs and for hydrogen production.

'We need to up the ante'

Those credits were backstopped by the promise of further action in the 2023 budget. Now, the federal government is warning that provinces will need to offer incentives of their own in key sectors, such as critical mineral extraction and advanced manufacturing.

"We as a country need to be strategic in selecting areas where we can actually be competitive," said the senior government official. "We are not going to be able to do everything. But we do need to select some spaces where we need to up the ante."

The need for a quick and effective response was underscored by the broad economic direction set by Canada, the U.S. and Mexico at the recent North American Leaders summit.

Kevin Lamarque/Reuters
Kevin Lamarque/Reuters

While in Mexico City, Prime Minister Justin Trudeau, U.S. President Joe Biden and Mexican President Andrés Manuel López Obrador pledged to strengthen supply chains and pursue continental self-reliance for the new manufacturing sectors of the 21st century.

"We're working to a future to strengthen our cooperation on supply chains and critical minerals so we can continue to accelerate in our efforts to build the technologies of tomorrow, right here in North America," Biden said at the closing news conference at the summit.

But while the U.S. speaks openly of economic cooperation, recent trade battles over Biden's Buy America policies and tax credits for electric vehicles underscore the threat to the Canadian economy.

One big challenge facing Canada is the sheer scale and scope of the U.S. incentives in the Inflation Reduction Act  — incentives that government sources have admitted Canada can't match. As a result, those sources say, Canada needs a policy response that is more targeted than the U.S. incentives.

"This is an important moment to discuss the economic outlook both in Canada and around the world, and to talk about how we can work together to build a 21st century Canadian economy that is good for workers and creates more good jobs and vibrant communities right across our country,"  Freeland's press secretary Adrienne Vauphas said in a media statement.

This week's meetings between Freeland and her provincial counterparts started with a working dinner on Thursday. They mark a return to in-person gatherings that were shelved during the pandemic.

Today's agenda will focus largely on the economic outlook and will include a session with Bank of Canada Governor Tiff Macklem.

The finance ministers are expected to discuss the ongoing negotiations to increase federal health transfers. But the bulk of that conversation will be left to next week's first ministers meeting in Ottawa.