David Rosenberg Calls for Bold Tax Reform to Revive Canada's Stagnant Economy
In a sharp critique of current economic policies, prominent economist David Rosenberg has issued a memo to former Bank of Canada governor Mark Carney, warning against using inadequate measures to address Canada's deep-seated economic challenges. Rosenberg argues that for decades, the Canadian economy has been hampered by what he describes as "confiscatory top marginal tax rates," and that superficial initiatives fail to tackle this core issue.
The Illusion of Prosperity and Real Economic Decay
Rosenberg points out that while external factors like trade disputes with the United States under former President Donald Trump have posed challenges, the primary impediments to domestic growth are self-inflicted. He emphasizes that Canada's economic performance was deteriorating even before recent trade skirmishes, and this decline persists today.
The Trudeau government's immigration boom has created a mere illusion of economic prosperity, according to Rosenberg. While gross domestic product growth might appear solid on the surface, real per-capita GDP has been steadily eroding. This masks a deeper problem of virtual stagnation that has plagued the country for a decade.
A Decade of Stagnation in Key Economic Indicators
Canada has experienced nearly ten years of stagnation in several critical areas:
- Real per-capita incomes have shown little meaningful growth
- Productivity improvements have been minimal
- Private-sector capital stock expansion has been sluggish
- Unprecedented net direct investment outflows have occurred
Rosenberg contends that if he were prime minister, his policy platform would avoid "nibbling around the edges" and instead embrace bold reforms in the tradition of former Prime Minister Brian Mulroney.
Superficial Solutions Versus Fundamental Reform
The economist criticizes current initiatives that focus on driving internal demand dynamics, describing them as "smoke and mirrors" that fail to address underlying structural problems. He specifically mentions temporary GST holidays and tax breaks on electric vehicles as examples of inadequate measures.
"Talk about bringing a butter knife to a gunfight," Rosenberg quips, emphasizing the mismatch between the scale of Canada's economic challenges and the proposed solutions.
The Core Problem: Confiscatory Tax Rates
Rosenberg identifies what he believes is the central issue that has infected the Canadian economy for decades: excessively high top marginal tax rates. He argues that nothing to date has adequately addressed this fundamental problem, which continues to hinder economic competitiveness and growth.
The economist calls for true tax reform, noting that it has been four decades since Canada last undertook a comprehensive strategy to update its tax system and enhance global competitiveness. His proposed slogan would be "Make Canada Competitive," drawing inspiration from successful international models.
Learning from Ireland's Success Story
Rosenberg points to Ireland as a compelling example of how bold tax reform can transform an economy. In the late 1990s, Ireland completely revamped its tax system, effectively becoming a global tax haven with dramatic success.
The contrast between Irish and Canadian tax rates is striking:
- Ireland's top marginal tax rate for individuals stands at 40 percent, compared to over 50 percent in Canada
- The business sector faces a 12.5 percent tax rate in Ireland, versus 26.5 percent in Canada
Despite lower tax rates, Ireland maintains superior fiscal metrics with better deficit and debt ratios than Canada. The country also supports a robust public healthcare system while allowing for private health insurance options.
The Economic Payoff of Competitive Taxation
Ireland's tax reforms have yielded substantial economic benefits that Rosenberg believes Canada could replicate:
- An unemployment rate of approximately 5 percent, compared to nearly 7 percent in Canada
- Average annual growth in real per-capita GDP exceeding 4 percent
- Enhanced global competitiveness attracting investment and talent
The economist expresses puzzlement at why Canadians consistently refuse to elect governments focused on promoting economic success through such reforms, calling it "a true mystery."
A Call for Immediate Action on Productivity and Capital
Rosenberg concludes with an urgent appeal for the Canadian government to shift its focus toward policies that can genuinely save the economy. He emphasizes the need to rebuild capital stock and stimulate productivity growth, which he describes as "the mother's milk for durable prosperity."
The message is clear: Canada must move beyond temporary measures and superficial solutions to implement fundamental tax reforms that address the root causes of economic stagnation. Only through bold action can the country hope to restore competitiveness and secure long-term prosperity for its citizens.
