Cutting Taxes a Better Approach, Allow the Markets to Find Right Solutions: Conference Board of Canada

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Canada’s decision to grant billions of dollars in incentives to corporations building battery facilities may boost the manufacturing industry. It may not be the best plan for increasing the country’s overall productivity, which has been dropping, according to a new research from the Conference Board of Canada.

Instead of picking winners, a preferable strategy would be to decrease taxes and let the market find the correct solutions to Canada’s current economic issues, said Pedro Antunes, chief economist at the board.

“To be specifically making deals with three or four companies on battery production is risky,” Antunes said. “What if the solution to our road pollution is different? Who knows what technology might emerge?”

While the battery plant investments will stimulate economic activity, Antunes warned that it could be a costly approach in the long run, as other companies will likely seek similar incentives to invest in Canada.

“It’s a dangerous path for governments to subsidize and compete to attract investment,” he told reporters. “It becomes more costly for taxpayers and leaves less room for governments to use those funds for other purposes.”

Canada has signed agreements with Stellantis NV, Volkswagen AG, Northvolt AB, and Honda Motor Co. Ltd. to build battery factories. Many expect these agreements to boost the country’s labor productivity levels, which have fallen in 12 of the past 15 quarters, according to government data.

The situation is dire enough that Bank of Canada senior deputy governor Carolyn Rogers described it as an emergency during a speech in March. Central bank governor Tiff Macklem also expressed concerns, stating that a failure to boost productivity would hinder the economy’s progress.