Economic Sustainability
#24Key Findings
Canada performs relatively poorly in international comparison (rank 24) with regard to economic sustainability.
With a strongly resource-focused economy, circular economic approaches have not been a focus. A national critical infrastructure strategy is in place, but climate-change issues such as wildfires have created steep new challenges. The government has set decarbonization goals but has never achieved them, and continues to invest billions in oil pipelines.
Tax credits and training programs support workers transitioning between jobs, and seek to align labor supply with demand. Strong antidiscrimination laws are in place, but wage gaps and hiring biases persist for women and minorities. The social safety net is strong but has not been updated to reflect modern work structures.
Corporate tax rates are low, but income taxes are relatively high. Aside from carbon taxes, few tax-system provisions address externalities. While debt levels are low by G7 standards, deficits are rising. R&D strategies are not coordinated across sectors, diminishing sustainability effects.
With a strongly resource-focused economy, circular economic approaches have not been a focus. A national critical infrastructure strategy is in place, but climate-change issues such as wildfires have created steep new challenges. The government has set decarbonization goals but has never achieved them, and continues to invest billions in oil pipelines.
Tax credits and training programs support workers transitioning between jobs, and seek to align labor supply with demand. Strong antidiscrimination laws are in place, but wage gaps and hiring biases persist for women and minorities. The social safety net is strong but has not been updated to reflect modern work structures.
Corporate tax rates are low, but income taxes are relatively high. Aside from carbon taxes, few tax-system provisions address externalities. While debt levels are low by G7 standards, deficits are rising. R&D strategies are not coordinated across sectors, diminishing sustainability effects.
Graph View
Graph View
How committed is the government to driving the transition toward a circular economy?
10
9
9
The government is clearly committed to transitioning to a circular economy.
8
7
6
7
6
The government is largely committed to transitioning to a circular economy.
5
4
3
4
3
The government is somewhat committed to transitioning to a circular economy.
2
1
1
The government is not at all committed to transitioning to a circular economy.
Canada is a resource-based nation, and circular thinking does not work well in the context of bulk exports of often carbon-intensive and difficult-to-recycle resources such as coal or heavy oil. The federal government would like to see a “North American” effort, believing this can be achieved through the deployment of economic policy instruments that can help “tilt the playing field” in favor of non-virgin materials and incentivize circular business models.
The policy instruments available to promote the circular economy include taxes and fees for waste disposal at both landfills and incineration facilities. These measures incentivize waste prevention and increased waste recovery. Additionally, different pricing for various materials going to landfills can be implemented, often varying prices based on the volume of waste. For example, higher prices may be set for materials that are more costly to manage or have high recycling potential.
Product taxes and fees to discourage the exclusive use of virgin materials and products such as single-use plastics are also possible, as are tax incentives on secondary and recycled materials to encourage more repair, reuse, refurbishment, remanufacturing, and recycling activities.
Government “green” procurement efforts are also expected to help drive consumer shifts and create demand for circular products and solutions. In Canada alone, CAD 200 billion is spent annually through public procurement.
The federal government argues that several models consider circular procurement criteria and eco-design requirements. These models can increase the potential for durability, resource efficiency, reuse, recyclability, refurbishment/remanufacturing, and the potential to buy recycled. The models differ at the product, supplier, and system levels.
At the system level, they include public-private partnerships and cooperation with other organizations on sharing, as well as rent/lease, supplier take-back systems, including reuse, recycling, refurbishment, and remanufacturing. At the supplier level, in addition to take-back systems, they include designing for disassembly, reparability of standard products, external reuse/sale of products, and internal reuse of products.
At the product level, they include clearly identifying product materials, ensuring products can be disassembled after use, using recyclable materials, maximizing resource use efficiency, and pricing that reflects the total cost of ownership.
Several federal grant programs are available for companies, academics, and innovators to develop new technologies that enable circular resource flows. However, the 2022 Federal Budget contained only a few mentions of the circular economy, allocating just $31.9 million toward plastics innovation and $70.6 million toward standards, data, and research initiatives related to plastics waste reduction. Thus, only minor initial investments have been made.
Citations:
https://www.canada.ca/en/services/environment/conservation/sustainability/circular-economy/circular-north-america/discussion-paper.html#toc11
The policy instruments available to promote the circular economy include taxes and fees for waste disposal at both landfills and incineration facilities. These measures incentivize waste prevention and increased waste recovery. Additionally, different pricing for various materials going to landfills can be implemented, often varying prices based on the volume of waste. For example, higher prices may be set for materials that are more costly to manage or have high recycling potential.
Product taxes and fees to discourage the exclusive use of virgin materials and products such as single-use plastics are also possible, as are tax incentives on secondary and recycled materials to encourage more repair, reuse, refurbishment, remanufacturing, and recycling activities.
Government “green” procurement efforts are also expected to help drive consumer shifts and create demand for circular products and solutions. In Canada alone, CAD 200 billion is spent annually through public procurement.
The federal government argues that several models consider circular procurement criteria and eco-design requirements. These models can increase the potential for durability, resource efficiency, reuse, recyclability, refurbishment/remanufacturing, and the potential to buy recycled. The models differ at the product, supplier, and system levels.
At the system level, they include public-private partnerships and cooperation with other organizations on sharing, as well as rent/lease, supplier take-back systems, including reuse, recycling, refurbishment, and remanufacturing. At the supplier level, in addition to take-back systems, they include designing for disassembly, reparability of standard products, external reuse/sale of products, and internal reuse of products.
At the product level, they include clearly identifying product materials, ensuring products can be disassembled after use, using recyclable materials, maximizing resource use efficiency, and pricing that reflects the total cost of ownership.
Several federal grant programs are available for companies, academics, and innovators to develop new technologies that enable circular resource flows. However, the 2022 Federal Budget contained only a few mentions of the circular economy, allocating just $31.9 million toward plastics innovation and $70.6 million toward standards, data, and research initiatives related to plastics waste reduction. Thus, only minor initial investments have been made.
Citations:
https://www.canada.ca/en/services/environment/conservation/sustainability/circular-economy/circular-north-america/discussion-paper.html#toc11
Graph View
How committed is the government to updating and protecting critical infrastructure?
10
9
9
The government is clearly committed to updating basic technical infrastructure.
8
7
6
7
6
The government is largely committed to updating basic technical infrastructure.
5
4
3
4
3
The government is somewhat committed to updating basic technical infrastructure.
2
1
1
The government is not at all committed to updating basic technical infrastructure.
Critical infrastructure refers to processes, systems, facilities, technologies, networks, assets, and services essential to the health, safety, security, or economic well-being of Canadians and the effective functioning of government. Critical infrastructure can be stand-alone or interconnected and interdependent within and across provinces, territories, and national borders. Disruptions of critical infrastructure could result in catastrophic loss of life, adverse economic effects, and significant harm to public confidence.
The governments of Canada, in general, are committed to providing infrastructure and ensuring its protection, from highways and sewers to basic internet availability. Significant infrastructure investments through initiatives like the Investing in Canada Plan prioritize upgrading and securing critical electricity, water, transportation, and telecommunications infrastructure with billions in allocated funding.
Through the Investing in Canada Plan, launched in 2016, the government of Canada committed over $180 billion over 12 years for infrastructure that benefits Canadians – from public transit to trading ports, broadband networks to energy systems, and community services to natural spaces. By 2020 – 2021, the plan had invested over $142 billion in more than 92,000 projects, 95% of which were completed or underway.
Many infrastructure programs began as part of the government’s response to the 2007 – 2008 Global Financial Crisis. In 2009, the National Strategy for Critical Infrastructure was launched to strengthen the resiliency of critical infrastructure sectors. The government stated it believed the goal of the National Strategy for Critical Infrastructure was to build a safer, more secure, and more resilient Canada by making improvements among the critical infrastructure sectors. These were listed as:
Energy and utilities
Finance
Food
Transportation
Government
Information and communication technology
Health
Water
Safety
Manufacturing
Key areas of focus include cybersecurity, threat assessment, emergency management, and infrastructure investments. Other actors, like the Canadian Centre for Cyber Security – a part of the Canadian Security Establishment – work on cyber threats to critical systems in sectors like energy, finance, telecommunications, transportation, and government. They share threat intelligence, provide advice and guidance, and have spearheaded new cybersecurity compliance legislation.
Importantly, climate change is creating new challenges for infrastructure policy. As illustrated by the dramatic summer 2023 wildfires, insufficient resources are available to address natural catastrophes related to climate change. To implement more resilient critical infrastructure, further provisions should be made in the context of climate adaptation.
Responsibilities for critical infrastructure in Canada are shared by federal, provincial and territorial governments, local authorities, and critical infrastructure owners and operators – who bear the primary responsibility for protecting their assets and services. The National Strategy supports the principle that critical infrastructure roles and activities should be carried out at all levels of society in Canada.
Citations:
https://www.publicsafety.gc.ca/cnt/rsrcs/pblctns/srtg-crtcl-nfrstrctr/index-en.aspx
https://www.infrastructure.gc.ca/plan/about-invest-apropos-eng.html
The governments of Canada, in general, are committed to providing infrastructure and ensuring its protection, from highways and sewers to basic internet availability. Significant infrastructure investments through initiatives like the Investing in Canada Plan prioritize upgrading and securing critical electricity, water, transportation, and telecommunications infrastructure with billions in allocated funding.
Through the Investing in Canada Plan, launched in 2016, the government of Canada committed over $180 billion over 12 years for infrastructure that benefits Canadians – from public transit to trading ports, broadband networks to energy systems, and community services to natural spaces. By 2020 – 2021, the plan had invested over $142 billion in more than 92,000 projects, 95% of which were completed or underway.
Many infrastructure programs began as part of the government’s response to the 2007 – 2008 Global Financial Crisis. In 2009, the National Strategy for Critical Infrastructure was launched to strengthen the resiliency of critical infrastructure sectors. The government stated it believed the goal of the National Strategy for Critical Infrastructure was to build a safer, more secure, and more resilient Canada by making improvements among the critical infrastructure sectors. These were listed as:
Energy and utilities
Finance
Food
Transportation
Government
Information and communication technology
Health
Water
Safety
Manufacturing
Key areas of focus include cybersecurity, threat assessment, emergency management, and infrastructure investments. Other actors, like the Canadian Centre for Cyber Security – a part of the Canadian Security Establishment – work on cyber threats to critical systems in sectors like energy, finance, telecommunications, transportation, and government. They share threat intelligence, provide advice and guidance, and have spearheaded new cybersecurity compliance legislation.
Importantly, climate change is creating new challenges for infrastructure policy. As illustrated by the dramatic summer 2023 wildfires, insufficient resources are available to address natural catastrophes related to climate change. To implement more resilient critical infrastructure, further provisions should be made in the context of climate adaptation.
Responsibilities for critical infrastructure in Canada are shared by federal, provincial and territorial governments, local authorities, and critical infrastructure owners and operators – who bear the primary responsibility for protecting their assets and services. The National Strategy supports the principle that critical infrastructure roles and activities should be carried out at all levels of society in Canada.
Citations:
https://www.publicsafety.gc.ca/cnt/rsrcs/pblctns/srtg-crtcl-nfrstrctr/index-en.aspx
https://www.infrastructure.gc.ca/plan/about-invest-apropos-eng.html
Graph View
How committed is the government to fully decarbonizing the energy system by 2050?
10
9
9
The government is clearly committed to transitioning to a decarbonized energy system.
8
7
6
7
6
The government is largely committed to transitioning to a decarbonized energy system.
5
4
3
4
3
The government is somewhat committed to transitioning to a decarbonized energy system.
2
1
1
The government is not at all committed to transitioning to a decarbonized energy system.
As a major exporter of oil, gas, and coal, Canada has made numerous statements expressing a commitment to decarbonization; however, these claims are often seen as implausible, and the country has never achieved any of its climate goals. In 2016, Canada signed the Paris Climate Agreement, committing to reduce economy-wide greenhouse gas emissions by 30% below 2005 levels by 2030. This includes emissions from the energy sector. Nevertheless, Canada is unlikely to meet these goals. During the 2021 federal election, the Liberal Party promised to introduce a plan to achieve net-zero emissions by 2050. After being re-elected, however, they have yet to unveil a definitive roadmap or set of policies to reliably reach net-zero by 2050. Most projections from the oil and gas industry indicate that fossil fuel production will continue well past 2050, suggesting the industry does not have a clear mandate from the government to fully decarbonize on that timeline.
The federal government of Canada, for example, has made commitments to reduce emissions and transition toward clean energy, but a definitive commitment to fully decarbonizing the energy system by 2050 remains ambiguous. While the federal government has incentivized the development of clean technologies, these efforts have not been tied to concrete, detailed performance metrics.
Canada has a carbon tax and has announced plans to move toward an emissions trading system, but many problems remain (Canada 2018). While the federal government has implemented policies like carbon pricing and clean fuel standards to begin driving down emissions, the current targets and policies are not enough to achieve full decarbonization by 2050, according to environmental groups. In addition, the government has invested billions in a new West Coast pipeline designed to move carbon-intensive heavy oil from Alberta to Pacific coast ports.
Citations:
Canada, Environment and Climate Change. 2018. “How Carbon Pricing Works.” https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/putting-price-on-carbon-pollution.html
The federal government of Canada, for example, has made commitments to reduce emissions and transition toward clean energy, but a definitive commitment to fully decarbonizing the energy system by 2050 remains ambiguous. While the federal government has incentivized the development of clean technologies, these efforts have not been tied to concrete, detailed performance metrics.
Canada has a carbon tax and has announced plans to move toward an emissions trading system, but many problems remain (Canada 2018). While the federal government has implemented policies like carbon pricing and clean fuel standards to begin driving down emissions, the current targets and policies are not enough to achieve full decarbonization by 2050, according to environmental groups. In addition, the government has invested billions in a new West Coast pipeline designed to move carbon-intensive heavy oil from Alberta to Pacific coast ports.
Citations:
Canada, Environment and Climate Change. 2018. “How Carbon Pricing Works.” https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/putting-price-on-carbon-pollution.html
Graph View
To what extent do existing labor market institutions support or hinder the transition to an adaptive labor market?
10
9
9
Labor market institutions are fully aligned with the goal of an adaptable labor market.
8
7
6
7
6
Labor market institutions are largely aligned with the goal of an adaptable labor market.
5
4
3
4
3
Labor market institutions are only somewhat aligned with the goal of an adaptable labor market.
2
1
1
Labor market institutions are not at all aligned with the goal of an adaptable labor market.
There are important connections in Canada between labor adjustment policies and immigration, and between the tax system and welfare payments, such as educational tax credits and employment insurance programs, which provide income support for workers transitioning between jobs. Initiatives like increased federal infrastructure and skills training investments aim to address skills shortages and better align labor supply with demand. Provincial nominee programs help employers recruit global talent to meet localized skills demands more efficiently. This allows individuals more latitude to receive training and education and enables job seekers to pursue better matches with labor market needs.
Economists and others argue many barriers still exist. Overly strict employment regulations around termination make employers reluctant to take risks by hiring workers they may need to lay off. Occupational licensing restrictions reduce labor market flexibility and mobility between provincially regulated occupations. Additionally, limited mid-career education and training funding makes it harder for older workers to retool for new jobs (Ghadi et al. 2023).
Citations:
Ghadi, Needal, Charles Gyan, Daniel Kikulwe, Christine Massing, and Crystal J. Giesbrecht. 2023. “Labour Market Integration of Newcomers to Canada: The Perspectives of Newcomers in a Smaller Urban Centre.” International Migration 61 (6): 133–54. https://doi.org/10.1111/imig.13151
Economists and others argue many barriers still exist. Overly strict employment regulations around termination make employers reluctant to take risks by hiring workers they may need to lay off. Occupational licensing restrictions reduce labor market flexibility and mobility between provincially regulated occupations. Additionally, limited mid-career education and training funding makes it harder for older workers to retool for new jobs (Ghadi et al. 2023).
Citations:
Ghadi, Needal, Charles Gyan, Daniel Kikulwe, Christine Massing, and Crystal J. Giesbrecht. 2023. “Labour Market Integration of Newcomers to Canada: The Perspectives of Newcomers in a Smaller Urban Centre.” International Migration 61 (6): 133–54. https://doi.org/10.1111/imig.13151
To what extent do existing labor market institutions support or hinder the transition to an inclusive labor market?
10
9
9
Labor market institutions are fully aligned with the goal of an inclusive labor market.
8
7
6
7
6
Labor market institutions are largely aligned with the goal of an inclusive labor market.
5
4
3
4
3
Labor market institutions are only somewhat aligned with the goal of an inclusive labor market.
2
1
1
Labor market institutions are not at all aligned with the goal of an inclusive labor market.
Canada has anti-discrimination laws and employment equity policies at all levels of government, which have helped reduce overt barriers and increase the representation of women, minorities, and other groups in the workplace. Accessibility legislation has improved workplace accommodations for people with disabilities, while immigration policies aim to facilitate the integration of new immigrants into the labor force.
Minorities and women, however, claim persistent hiring biases and wage gaps still exist against marginalized groups despite these anti-discrimination laws.
Lack of affordable childcare in most jurisdictions limits labor force participation, especially among lower-income women. Quebec is a clear exception, and recent new federal investments are likely to help improve access to affordable childcare in other provinces.
Finally, temporary foreign worker programs leave migrant workers vulnerable to abuse and workplace violations. The record number of temporary foreign workers who have moved to Canada since the end of the COVID-19 pandemic has become a major source of public debate.
Minorities and women, however, claim persistent hiring biases and wage gaps still exist against marginalized groups despite these anti-discrimination laws.
Lack of affordable childcare in most jurisdictions limits labor force participation, especially among lower-income women. Quebec is a clear exception, and recent new federal investments are likely to help improve access to affordable childcare in other provinces.
Finally, temporary foreign worker programs leave migrant workers vulnerable to abuse and workplace violations. The record number of temporary foreign workers who have moved to Canada since the end of the COVID-19 pandemic has become a major source of public debate.
To what extent do existing labor market institutions support or hinder the mitigation of labor market risks?
10
9
9
Labor market institutions are fully aligned with the goal of protecting individuals against labor market risks.
8
7
6
7
6
Labor market institutions are largely aligned with the goal of protecting individuals against labor market risks.
5
4
3
4
3
Labor market institutions are only somewhat aligned with the goal of protecting individuals against labor market risks.
2
1
1
Labor market institutions are not at all aligned with the goal of protecting individuals against labor market risks.
Overall, Canada has a fairly strong social safety net to mitigate labor market risks relative to many other countries, but it is in need of updating.
Several key supports for workers have existed in Canada for decades, dating back to programs first introduced during the First World War and the Depression of the 1930s. Chief among these is unemployment insurance, which helps replace wages during temporary job loss. Workplace safety standards and workers’ compensation rules also help minimize injury and illness risks. Minimum wage laws aim to provide a living wage and address exploitation, while pension plans guard against poverty in retirement.
However, recent changes in the labor force have not been adequately addressed. Unemployment insurance has not adapted to trends of more frequent job transitions, and the self-employed have less access to these protections. Consequently, precarious gig economy jobs typically lack social protections or benefits. The risk of job automation is also not supported by dedicated retraining programs. Additionally, inequities in work benefits continue to exist across income levels.
Several key supports for workers have existed in Canada for decades, dating back to programs first introduced during the First World War and the Depression of the 1930s. Chief among these is unemployment insurance, which helps replace wages during temporary job loss. Workplace safety standards and workers’ compensation rules also help minimize injury and illness risks. Minimum wage laws aim to provide a living wage and address exploitation, while pension plans guard against poverty in retirement.
However, recent changes in the labor force have not been adequately addressed. Unemployment insurance has not adapted to trends of more frequent job transitions, and the self-employed have less access to these protections. Consequently, precarious gig economy jobs typically lack social protections or benefits. The risk of job automation is also not supported by dedicated retraining programs. Additionally, inequities in work benefits continue to exist across income levels.
Graph View
To what extent do existing tax institutions and procedures support or hinder adequate tax revenue flows?
10
9
9
The tax system is fully aligned with the goals of ensuring adequate tax revenues.
8
7
6
7
6
The tax system is largely aligned with the goals of ensuring adequate tax revenues.
5
4
3
4
3
The tax system is only somewhat aligned with the goals of ensuring adequate tax revenues.
2
1
1
The tax system is not at all aligned with the goals of ensuring adequate tax revenues.
Tax policy in Canada is sophisticated and serves many purposes. The tax code is a mammoth document with numerous additions and changes over the years, which have increased its complexity. This complexity affects measures such as equity and complicates audits and the work of tax courts (Gillespie 1979).
Canada has lowered statutory corporate tax rates in recent decades to encourage investment. Rates are now comparable to OECD averages. Individual tax brackets and earned income tax credits provide higher take-home pay for low- to middle-income levels to reward work. However, high marginal effective tax rates still exist for higher-income ranges, which serve to disincentivize work and advancement. Tax complexity related to income splitting and dividends can also discourage small business investment (PBO).
However, among G7 members, Canada has the “lowest marginal effective tax rate on new business investment” (Canada 2023, 70).
The introduction of online tax filing and automation has improved the system’s efficiency. However, continued underfunding for auditors and investigators enables slippage. An estimated $25 billion per year is lost due to tax noncompliance. Fewer than half of tax evasion court cases result in convictions. Faulty procedures and overburdened prosecutors undermine enforcement.
Aggressive “tax schemes” often go unpenalized, which incentivizes this behavior (CBC 2015).
Citations:
Canada, Department of Finance. 2023. Budget 2023, A Made-in-Canada Plan. Ottawa: His Majesty the King in Right of Canada.
Gillespie, W. I. 1979. “Postwar Canadian Fiscal Policy Revisited, 1945-1975.” Canadian Tax Journal 27: 265–76.
https://pipsc.ca/news-issues/tax-fairness#:~:text=The%20Parliamentary%20Budget%20Officer%20estimates,yield%20%245.75%20in%20tax%20revenue
https://www.cbc.ca/news/business/taxes/tax-time-2015-why-tax-cheats-in-canada-are-rarely-jailed-1.2960595
Canada has lowered statutory corporate tax rates in recent decades to encourage investment. Rates are now comparable to OECD averages. Individual tax brackets and earned income tax credits provide higher take-home pay for low- to middle-income levels to reward work. However, high marginal effective tax rates still exist for higher-income ranges, which serve to disincentivize work and advancement. Tax complexity related to income splitting and dividends can also discourage small business investment (PBO).
However, among G7 members, Canada has the “lowest marginal effective tax rate on new business investment” (Canada 2023, 70).
The introduction of online tax filing and automation has improved the system’s efficiency. However, continued underfunding for auditors and investigators enables slippage. An estimated $25 billion per year is lost due to tax noncompliance. Fewer than half of tax evasion court cases result in convictions. Faulty procedures and overburdened prosecutors undermine enforcement.
Aggressive “tax schemes” often go unpenalized, which incentivizes this behavior (CBC 2015).
Citations:
Canada, Department of Finance. 2023. Budget 2023, A Made-in-Canada Plan. Ottawa: His Majesty the King in Right of Canada.
Gillespie, W. I. 1979. “Postwar Canadian Fiscal Policy Revisited, 1945-1975.” Canadian Tax Journal 27: 265–76.
https://pipsc.ca/news-issues/tax-fairness#:~:text=The%20Parliamentary%20Budget%20Officer%20estimates,yield%20%245.75%20in%20tax%20revenue
https://www.cbc.ca/news/business/taxes/tax-time-2015-why-tax-cheats-in-canada-are-rarely-jailed-1.2960595
To what extent do existing tax institutions and procedures consider equity aspects?
10
9
9
The tax system is fully aligned with the goal of ensuring equity.
8
7
6
7
6
The tax system is largely aligned with the goal of ensuring equity.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of ensuring equity.
2
1
1
The tax system is not at all aligned with the goal of ensuring equity.
Equity is ostensibly one of the goals of the Canadian tax system. Yet large inequities exist in the treatment of salaries and wages compared with capital investment income and real estate holdings.
Canada’s tax system aims for horizontal equity, generally trying to treat those with similar income levels equally. However, provisions like capital gains exclusions and business deductions can enable higher-income groups to face lower effective tax rates than lower-wage workers.
Groups like seniors, workers with disabilities, and families with children do receive some tax incentives and credits aimed at supporting their higher costs, but pension income, for example, is fully taxed.
Vertical equity is also aimed for in the form of a “progressive” system in which higher earners pay larger shares of taxes. Canada’s progressive income tax schedule imposes higher percentage taxes on sections of income as earnings rise.
However, the concentration of savings and capital gains among higher earners leads to this income being taxed at lower rates, undermining vertical equity. Most deductions also tend to provide greater benefits to higher-income groups, reducing their effective rates.
Canada’s tax system aims for horizontal equity, generally trying to treat those with similar income levels equally. However, provisions like capital gains exclusions and business deductions can enable higher-income groups to face lower effective tax rates than lower-wage workers.
Groups like seniors, workers with disabilities, and families with children do receive some tax incentives and credits aimed at supporting their higher costs, but pension income, for example, is fully taxed.
Vertical equity is also aimed for in the form of a “progressive” system in which higher earners pay larger shares of taxes. Canada’s progressive income tax schedule imposes higher percentage taxes on sections of income as earnings rise.
However, the concentration of savings and capital gains among higher earners leads to this income being taxed at lower rates, undermining vertical equity. Most deductions also tend to provide greater benefits to higher-income groups, reducing their effective rates.
To what extent do existing tax institutions and procedures minimize compliance and collection costs?
10
9
9
The tax system is fully aligned with the goal of minimizing compliance and collection costs.
8
7
6
7
6
The tax system is largely aligned with the goal of minimizing compliance and collection costs.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of minimizing compliance and collection costs.
2
1
1
The tax system is not at all aligned with the goal of minimizing compliance and collection costs.
The tax rules in Canada are very complex, especially for high-income earners and large companies. Although low earners and small businesses benefit from a simplified system, the complexity of Canada’s tax regulations undermines transparency and increases administrative costs for taxpayers.
Frequent changes from year to year make it difficult for average taxpayers to understand the tax implications of different behaviors and plan accordingly. Opaque technical language around deductions and income categories reduces clarity. The general lack of easily accessible summaries of rules for average taxpayers hinders transparency and drives up taxpayer costs.
As a result, large numbers of Canadian taxpayers rely on professional help, paying billions annually in fees. Many millions of hours are spent annually by individuals completing complex return forms. This complexity also drives administrative and litigation costs, as the Canada Revenue Agency (CRA) audits more than 350,000 files each year. Ultimately, Canada has one of the highest tax dispute rates among OECD countries due to lack of clarity in rules and audit results.
Citations:
https://taxpage.com/tax-audit-assistance/#:~:text=There%20are%20over%20350%2C000%20audit,35%2C000%20are%20tax%20shelter%20audits.&text=CRA%20may%20choose%20to%20audit%20a%20taxpayer%20for%20several%20reasons.
Frequent changes from year to year make it difficult for average taxpayers to understand the tax implications of different behaviors and plan accordingly. Opaque technical language around deductions and income categories reduces clarity. The general lack of easily accessible summaries of rules for average taxpayers hinders transparency and drives up taxpayer costs.
As a result, large numbers of Canadian taxpayers rely on professional help, paying billions annually in fees. Many millions of hours are spent annually by individuals completing complex return forms. This complexity also drives administrative and litigation costs, as the Canada Revenue Agency (CRA) audits more than 350,000 files each year. Ultimately, Canada has one of the highest tax dispute rates among OECD countries due to lack of clarity in rules and audit results.
Citations:
https://taxpage.com/tax-audit-assistance/#:~:text=There%20are%20over%20350%2C000%20audit,35%2C000%20are%20tax%20shelter%20audits.&text=CRA%20may%20choose%20to%20audit%20a%20taxpayer%20for%20several%20reasons.
To what extent do existing tax institutions and procedures internalize negative and positive externalities?
10
9
9
The tax system is fully aligned with the goal of internalizing externalities.
8
7
6
7
6
The tax system is largely aligned with the goal of internalizing externalities.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of internalizing externalities.
2
1
1
The tax system is not at all aligned with the goal of internalizing externalities.
There is little connection between the tax system and externalities in Canada, except for carbon taxes. Canada applies some environmental taxes and research subsidies to address minor externalities. For example, some provinces and local governments tax or charge for landfill waste disposal to cover disposal costs. Fuel taxes are expected to cover some road maintenance costs and help capture local air pollution impacts but underestimate environmental damage per liter. Many forms of water pollution and toxic chemical releases remain untaxed.
In one major deviation from this model, the federal government of Canada has implemented carbon pricing mechanisms and successfully imposed them on the provinces, though current prices are likely below estimated climate damage costs.
Positive externalities are supported through tax credits, which aid some R&D spending by private sector companies. The government of Canada allocates approximately $3 billion annually in generous tax credit incentives through the Scientific Research and Education Development Program.
Research grant programs from tri-council funding agencies also subsidize academic research and graduate training. The spillover benefits of training skilled workers are also not fully captured.
Citations:
https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/evolution-program-a-historical-perspective.html
In one major deviation from this model, the federal government of Canada has implemented carbon pricing mechanisms and successfully imposed them on the provinces, though current prices are likely below estimated climate damage costs.
Positive externalities are supported through tax credits, which aid some R&D spending by private sector companies. The government of Canada allocates approximately $3 billion annually in generous tax credit incentives through the Scientific Research and Education Development Program.
Research grant programs from tri-council funding agencies also subsidize academic research and graduate training. The spillover benefits of training skilled workers are also not fully captured.
Citations:
https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/evolution-program-a-historical-perspective.html
Graph View
To what extent do existing budgetary institutions and procedures support or hinder sustainable budgeting?
10
9
9
Budgetary institutions and policies are fully aligned with the goals of sustainable budgeting.
8
7
6
7
6
Budgetary institutions and policies are largely aligned with the goals of sustainable budgeting.
5
4
3
4
3
Budgetary institutions and policies are only somewhat aligned with the goals of sustainable budgeting.
2
1
1
Budgetary institutions and policies are not at all aligned with the goals of sustainable budgeting.
Canada is a fiscally and financially prudent country. Special purpose funds, such as pensions, are carefully hedged against risk, and governments running large deficits or debt can expect to suffer at the polls (Hale 2002).
There are few legal limits on fiscal imprudence. Deficit tolerance has allowed debt-to-GDP to rise over the past 30 years, and fiscal consolidation has not occurred during periods of economic growth (Hartle 1978).
Budget reporting is reasonably transparent, with some off-book accounts, such as crown corporations, having separate budgets. However, intergenerational impacts are under-disclosed. Federal budgets typically project only 5 to 10 years ahead, lacking long-term sustainability assessments. Future obligations related to demographics and climate change are often underestimated.
There are no explicit linkages in budgeting to Canada’s SDG commitments, for example. Funding tied to development or environmental goals tends to lack multi-year allotments or performance tracking.
Canada has made significant progress in reducing the debt burden imposed by the pandemic. Notably, between Budget 2023 and the Fall Economic Statement (FES) of 2023, the government of Canada’s budgetary balance for 2022 – 2023 improved from -$43.0 billion (Budget 2023, Table 1: 20) to -$35.3 billion (FES 2023, Table 1: 10). Additionally, Canada boasts both the lowest deficit and net debt-to-GDP ratio among G7 members (FES 2023: 1, Chart 3). Nevertheless, fiscal prudence will continue to be essential, as the federal deficit is still expected to increase by $4.7 billion by 2023 – 24.
Citations:
Hartle, D. G. 1978. The Expenditure Budget Process in the government of Canada. Canada: Canadian Tax Foundation.
Hale, Geoffrey E. 2002. The Politics of Taxation in Canada. Peterborough, Ont: Broadview Press.
Canada, Department of Finance. 2023. Budget 2023: A Made-in-Canada Plan. Ottawa: His Majesty the King in Right of Canada.
Canada, Department of Finance. 2023. Fall Economic Statement 2023. Ottawa: His Majesty the King in Right of Canada.
There are few legal limits on fiscal imprudence. Deficit tolerance has allowed debt-to-GDP to rise over the past 30 years, and fiscal consolidation has not occurred during periods of economic growth (Hartle 1978).
Budget reporting is reasonably transparent, with some off-book accounts, such as crown corporations, having separate budgets. However, intergenerational impacts are under-disclosed. Federal budgets typically project only 5 to 10 years ahead, lacking long-term sustainability assessments. Future obligations related to demographics and climate change are often underestimated.
There are no explicit linkages in budgeting to Canada’s SDG commitments, for example. Funding tied to development or environmental goals tends to lack multi-year allotments or performance tracking.
Canada has made significant progress in reducing the debt burden imposed by the pandemic. Notably, between Budget 2023 and the Fall Economic Statement (FES) of 2023, the government of Canada’s budgetary balance for 2022 – 2023 improved from -$43.0 billion (Budget 2023, Table 1: 20) to -$35.3 billion (FES 2023, Table 1: 10). Additionally, Canada boasts both the lowest deficit and net debt-to-GDP ratio among G7 members (FES 2023: 1, Chart 3). Nevertheless, fiscal prudence will continue to be essential, as the federal deficit is still expected to increase by $4.7 billion by 2023 – 24.
Citations:
Hartle, D. G. 1978. The Expenditure Budget Process in the government of Canada. Canada: Canadian Tax Foundation.
Hale, Geoffrey E. 2002. The Politics of Taxation in Canada. Peterborough, Ont: Broadview Press.
Canada, Department of Finance. 2023. Budget 2023: A Made-in-Canada Plan. Ottawa: His Majesty the King in Right of Canada.
Canada, Department of Finance. 2023. Fall Economic Statement 2023. Ottawa: His Majesty the King in Right of Canada.
Graph View
How committed is the government to utilizing research and innovation as drivers for the transition to a sustainable economy and society?
10
9
9
The government is clearly committed to utilizing research and innovation as drivers for the transition to a sustainable economy and society.
8
7
6
7
6
The government is largely committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
5
4
3
4
3
The government is somewhat committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
2
1
1
The government is not at all committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
Very little thought is given to sustainability transitions in Canada. No overarching national strategy with binding targets guides R&D across sectors, and efforts are uneven across industries and regions. Some sector-specific plans exist (e.g., cleantech strategies) but are siloed, as inconsistent prioritization and coordination across departments and industries is the norm (Niosi 1991; 1998).
Multiple agencies and ministries fund innovation with overlapping mandates – for example, the NRC, CFI, NSERC, and SSHRC – supporting both academic and industry research without emphasizing sustainability issues. Base funding for researchers remains below that of global peers, and tax incentives for private R&D are complex and inadequate. This situation follows a series of scandals in the 1990s and 2000s involving excessively loose incentives.
Despite large public investments in innovation policy, outcomes in that area are generally unimpressive. Yet, there are at least two exceptions to this observation. Canada has improved its situation with regard to access to venture capital and investments in higher education research and development (Scharf 2022).
Some monitoring of economic trends occurs through output metrics such as patents and publications, but comparable measures of environmental and economic impact are generally lacking.
While reasonably strong supports exist for startups and venture capital funding, scaling firms still face commercialization barriers from established companies, especially in the nearby U.S. market.
Citations:
Niosi, J. 1991. “Canada’s National System of Innovation.” Science and Public Policy 18 (2): 83–83.
Niosi, J., R. Anderson, T. Cohn, J. Day, M. Howlett, and C. Murray. 1998. “Canada’s National R&D System.” In Innovation Systems in A Global Context: The North American Experience, 91–107. Montreal: McGill-Queen’s University Press.
Scharf, Shirley Anne. Canadian Innovation Policy: The Continuing Challenge. Ph.D. dissertation (unpublished). Ottawa: University of Ottawa. http://hdl.handle.net/10393/43951.
Multiple agencies and ministries fund innovation with overlapping mandates – for example, the NRC, CFI, NSERC, and SSHRC – supporting both academic and industry research without emphasizing sustainability issues. Base funding for researchers remains below that of global peers, and tax incentives for private R&D are complex and inadequate. This situation follows a series of scandals in the 1990s and 2000s involving excessively loose incentives.
Despite large public investments in innovation policy, outcomes in that area are generally unimpressive. Yet, there are at least two exceptions to this observation. Canada has improved its situation with regard to access to venture capital and investments in higher education research and development (Scharf 2022).
Some monitoring of economic trends occurs through output metrics such as patents and publications, but comparable measures of environmental and economic impact are generally lacking.
While reasonably strong supports exist for startups and venture capital funding, scaling firms still face commercialization barriers from established companies, especially in the nearby U.S. market.
Citations:
Niosi, J. 1991. “Canada’s National System of Innovation.” Science and Public Policy 18 (2): 83–83.
Niosi, J., R. Anderson, T. Cohn, J. Day, M. Howlett, and C. Murray. 1998. “Canada’s National R&D System.” In Innovation Systems in A Global Context: The North American Experience, 91–107. Montreal: McGill-Queen’s University Press.
Scharf, Shirley Anne. Canadian Innovation Policy: The Continuing Challenge. Ph.D. dissertation (unpublished). Ottawa: University of Ottawa. http://hdl.handle.net/10393/43951.
Graph View
How committed and credible is the government in its activities to guide the effective regulation and supervision of the international financial architecture?
10
9
9
The government is clearly committed to ensuring the stability of the global financial system.
8
7
6
7
6
The government is largely committed to ensuring the stability of the global financial system.
5
4
3
4
3
The government is somewhat committed to ensuring the stability of the global financial system.
2
1
1
The government is not at all committed to ensuring the stability of the global financial system.
Canada is very concerned about the stability of global financial markets, and successive Canadian governments have demonstrated a commitment to effective regulation of the international financial architecture, including membership in the World Bank and the International Monetary Fund.
Canada has recently pushed for better coordination of global fiscal stimulus and financial oversight reforms through the G20 and Financial Stability Board since the 2008 GFC and advanced these initiatives during the COVID-19 pandemic (Lindquist 2022).
Canada has also joined international tax reform initiatives aimed at curbing corporate tax avoidance and improving the exchange of banking information to prevent money laundering and fraud. However, insufficient enforcement on domestic money laundering and tax evasion continues to enable global financial crimes.
Recently, however, the federal government has permitted the buildup of high household debt levels with overly loose domestic mortgage rules, a current concern of regulators.
In some cases, while Canada advocates for global financial reforms, it struggles to fully implement best practices domestically across market stability, illicit money flows, and climate-related standards (Gnutzmann et al. 2010).
Citations:
Lindquist, Evert A. 2022. “Canada’s Response to the Global Financial Crisis: Pivoting to the Economic Action Plan.” In Policy Success in Canada: Cases, Lessons, Challenges, eds. Evert Lindquist, Michael Howlett, Grace Skogstad, Geneviève Tellier, and Paul t’ Hart. Oxford: Oxford University Press. https://doi.org/10.1093/oso/9780192897046.003.0023
Gnutzmann, Hinnerk, Killian J. McCarthy, and Brigitte Unger. 2010. “Dancing with the Devil: Country Size and the Incentive to Tolerate Money Laundering.” International Review of Law and Economics 30 (3): 244–52.
Canada has recently pushed for better coordination of global fiscal stimulus and financial oversight reforms through the G20 and Financial Stability Board since the 2008 GFC and advanced these initiatives during the COVID-19 pandemic (Lindquist 2022).
Canada has also joined international tax reform initiatives aimed at curbing corporate tax avoidance and improving the exchange of banking information to prevent money laundering and fraud. However, insufficient enforcement on domestic money laundering and tax evasion continues to enable global financial crimes.
Recently, however, the federal government has permitted the buildup of high household debt levels with overly loose domestic mortgage rules, a current concern of regulators.
In some cases, while Canada advocates for global financial reforms, it struggles to fully implement best practices domestically across market stability, illicit money flows, and climate-related standards (Gnutzmann et al. 2010).
Citations:
Lindquist, Evert A. 2022. “Canada’s Response to the Global Financial Crisis: Pivoting to the Economic Action Plan.” In Policy Success in Canada: Cases, Lessons, Challenges, eds. Evert Lindquist, Michael Howlett, Grace Skogstad, Geneviève Tellier, and Paul t’ Hart. Oxford: Oxford University Press. https://doi.org/10.1093/oso/9780192897046.003.0023
Gnutzmann, Hinnerk, Killian J. McCarthy, and Brigitte Unger. 2010. “Dancing with the Devil: Country Size and the Incentive to Tolerate Money Laundering.” International Review of Law and Economics 30 (3): 244–52.