Read the Blueprint
Tax Reform and Competitiveness
In recent years, Canada’s tax system has discouraged the investment and risk-taking businesses need to grow while weakening incentives for skilled workers to work more or stay in Canada. Corporate tax rates and capital gains treatment have both moved in the wrong direction, signalling to investors that Canada is a less attractive place to invest. However, if passed, the proposed Productivity Mega Deduction would narrow the gap with the US on investment write-offs. Canada also relies less on more efficient consumption taxes than its peers, leaning instead on the income and investment taxes that do the most economic damage. It has been nearly 40 years since Canada’s last comprehensive tax reform, and that overdue reform is where this agenda begins.
The case for comprehensive reform
Canada’s tax system is riddled with distortions that discourage the investment the economy needs to boost productivity. Small businesses face tax disincentives as they grow, and this matters because larger firms tend to be more productive and pay higher wages. The United States generally has a more favourable tax environment for personal, business, and capital gains taxes, though Canada narrowed the investment gap in September when the Prime Minister announced a Productivity Mega Deduction that, if passed, expands immediate expensing to roughly two-thirds of capital assets and cuts the marginal effective tax rate on new business investment to less than half the US rate, according to Department of Finance calculations. Still, Canada lost its statutory corporate tax advantage relative to the US when the Americans overhauled their tax system in 2017, and personal income tax rates remain stubbornly high across the board.
A recent C.D. Howe proposal spells out what a real fix looks like. Ottawa should collapse the personal tax system from five brackets to three, replace most credits and deductions with a simple $10,000 allowance, and cut the general corporate tax rate to 10 percent, paying for it with a higher GST or a new payroll levy dedicated to healthcare (Mintz, Laurin, and Dahir, 2026). By the authors’ estimate, the changes could unlock $140 billion in new business investment, add 2.5 percent to GDP, and still bring in $26 billion more a year in revenue.
Reform this size needs a champion and would benefit from coordinating with the provinces, so Ottawa should also strike a national tax commission to drive it, with a mandate that includes phasing out the small business tax preference, using the savings to eliminate capital gains tax on the sale of qualifying small businesses, and tackling the punishing tax rates middle-income families face as government benefits get clawed back (Lester, 2025). And if full reform proves too heavy a political lift, Ottawa could still cut the second personal tax bracket, trim the corporate rate by two points, drop the surtax on banks and the tax on share buybacks, and cover the cost with a modest GST increase (Robson, Drummond, and Laurin, 2025).
Business and investment taxation
Three targeted fixes would help improve investment conditions now, notwithstanding comprehensive reform. Ottawa should eliminate capital gains tax on qualifying small business shares sold to Canadian buyers, which would encourage more entrepreneurs to start companies and more investors to fund them. It should also tax income earned from patents and other intellectual property developed in Canada at a lower rate so companies have a reason to commercialize those inventions and book the resulting profits and tax revenue in Canada (Lester 2025; Robson, Drummond, and Laurin 2025). And a temporary investment tax credit, even a modest 5 percent, would give businesses an immediate reason to buy new equipment rather than wait (Robson and Bafale 2025).
Personal taxation and work incentives
Canada’s benefit system can discourage people from earning more. As income rises, taxes go up, and income-tested benefits shrink at the same time, which can push the effective tax rate on an extra dollar earned above 50 percent, and above 75 percent for some lower-income families (Dahir and Laurin 2025). Ottawa should better coordinate how these programs interact so they stop working against each other. It should also let workers average their income over several years so a single strong year of freelance or contract earnings does not trigger a disproportionate tax hit and benefit clawback, a problem that increasingly hits Canada’s growing pool of gig and contract workers hardest.
What provinces and municipalities can do
Provinces and cities have room to improve too. Land transfer taxes rank among the most economically damaging taxes any government levies since they discourage people from moving to better jobs or better-suited housing (Dachis 2012; Dachis 2020). Provinces and cities that still charge them should wind them down and lean more on property taxes instead, since those work as a fee for local services, not a tax on moving (Dachis 2020). Where governments are tempted to offer property tax relief or deferrals, income-tested support aimed directly at people who need it would do the job better (Dachis 2020).
References
- Dachis, Benjamin. 2012. Stuck in Place: The Effect of Land Transfer Taxes on Housing Transactions. Toronto: C.D. Howe Institute. Link
- Dachis, Benjamin. 2020. Gimme Shelter: How High Municipal Housing Charges and Taxes Decrease Housing Supply. Toronto: C.D. Howe Institute. Link
- Dahir, Nicholas and Alexandrew Laurin. 2025. The Clawback Trap: How Canada’s Benefit System Can Undermine Work and Saving. Commentary 697. Toronto: C.D. Howe Institute. Link
- Lester, John. 2025. An Economic Strategy for Canada’s Next Government. Special Policy Report. Toronto: C.D. Howe Institute. Link
- Mintz, Jack, Alexandre Laurin, and Nicholas Dahir. 2026. “Big Bang” Tax Reform: Unleashing Growth in the Canadian Economy. Commentary 707. Toronto: C.D. Howe Institute. Link
- Robson, William B.P., and Mawakina Bafale. 2025. Canada’s Investment Crisis: Shrinking Capital Undermines Competitiveness and Wages. Commentary 699. Toronto: C.D. Howe Institute. Link
- Robson, William B.P., Don Drummond, and Alexandre Laurin. 2025. Putting Canada’s Economy First: The C.D. Howe Institute’s 2025 Shadow Budget. Toronto: C.D. Howe Institute. Link
Regulation
Canada’s regulatory environment has accumulated rules, blocked development, and raised barriers to entry that discourage the investment and innovation productivity growth requires. Businesses face slow, unpredictable approvals for everything from a new subsidiary to a national pipeline. Homebuilders face duplicate inspections and outdated codes that add months to every project. Workers face professional licensing rules that treat a provincial border like a foreign one. Rules have been added for decades without always removing the ones that no longer serve a purpose, leaving the system heavier than the problems it was built to solve.
Get major projects moving
A recent attempt to speed up approvals for major projects, the Building Canada Act, enacted through Bill C-5 in 2025, does not fix what is actually broken. The law lets cabinet fast-track a favoured list of “national interest” projects, but it never defines what national interest means, and the final approval decision still rests with politicians rather than the expert regulators who already review these projects on their merits (Vegh and Koplovich 2026). That leaves the same problem that has slowed major projects for years in place: a pipeline can clear every technical and environmental hurdle and still stall over a shift in political mood.
The fix is not a new office layered on top of the old process, but rather taking politics out of the decision. Expert regulators like the Canada Energy Regulator and the Impact Assessment Agency should have the final word on approvals, not cabinet. Reviews should stick to a project’s direct effects rather than double as forums for debating national climate policy, questions better settled by elected governments through actual legislation. And once a timeline is set, it should hold for government and applicants alike, with extensions granted only for genuinely unforeseen circumstances (Vegh and Koplovich 2026).
The C.D. Howe Institute has been making this case for years. Earlier research reached the same conclusion: let expert tribunals decide, write legislation precisely enough that reviews stay focused on what is actually relevant to a project, and stop layering federal and provincial public-interest tests on top of each other (DeLand and Gilmour 2024; Lester 2025). Ottawa introduced Bill C-39 in September 2026, proposing a one-year timeline for federal project reviews and shifting pipeline approvals to the Canada Energy Regulator. Where it lands on the questions above will become clearer as it moves through Parliament.
Eliminate duplicative rules
Some of Canada’s highest regulatory costs come from rules that simply repeat each other. Interprovincial trade barriers are the clearest example. There are no tariffs on goods moving between provinces, but differing licensing, certification, and government-procurement rules shrink the size of Canada’s internal market as effectively as a tariff would.
Removing these barriers in goods alone could raise Canada’s GDP by up to 4 percent, or roughly $120 billion a year; removing them in services would add still more (Lester 2025). Getting there requires fixing the process meant to resolve these barriers in the first place: appointing senior officials with real authority to the federal-provincial table responsible for reconciliation, giving the federal government a permanent co-chair role to help break deadlocks, and estimating the cost of each unresolved barrier so governments prioritize the ones that matter most (Manucha 2025).
Provinces should agree on common baseline licensing standards in high-demand fields like nursing, engineering, and the skilled trades, adding extra conditions only where they can show a genuine public safety reason for doing so. Ontario’s approach, admitting out-of-province workers automatically unless a specific exception applies, is a workable model the rest of the country should adopt (Mahboubi and Zhang 2026).
The same duplication shows up closer to Canadians’ homes. Municipalities require separate building inspections for construction methods, like modular and prefabricated housing, that a neighbouring city already inspects under a different rulebook, and inconsistent codes stop builders from reusing designs that already work elsewhere. Standardizing codes and eliminating repeat inspections would let homebuilders move faster without loosening any safety standard. Municipalities should also publish clear target timelines for permit approvals and inspections, and introduce a fast-track permit process for projects using innovative construction methods, since the time savings modular and prefabricated housing offer disappear if permitting itself remains slow (Fariha 2025).
Fixing individual rules one at a time will not stop the total burden from growing back. Ottawa needs a standing, economy-wide review process to inventory existing regulations and retire or consolidate the ones that no longer earn their keep (Edwards 2025).
Where else is Canada losing ground?
Several other sectors are losing ground to regulation the same way, and the Institute has specific reform proposals for each. Auto insurance premiums in Canada rank among the highest in the world relative to GDP, and personal injury coverage costs four times more in provinces that rely on private insurers than in those with government-run systems, evidence that heavy-handed regulation, not the private sector itself, is driving up the price. Provinces should loosen the rules that keep insurers from competing on price and product design (Marshall 2022).
Financial services tell a similar story. Canada’s open banking framework still is not fully implemented years after it was first proposed, and the rollout plan needs updating now that Budget 2025 has moved well past what the original 2020 proposal assumed (Koeppl and Kronick 2020). A parallel effort to modernize federal capital markets legislation has stalled for years, after Parliament voted to discontinue funding for the Canadian Securities Transition Office in 2021. Ottawa should finish the job, establishing a dedicated federal agency to manage systemic risk and a separate one to investigate and prosecute capital markets crime, an area where Canada currently applies far less enforcement intensity than the United States (Bourque and Hyndman 2026).
References
- Bourque, Paul C., and Douglas M. Hyndman. 2026. Finish the Job: Completing Canada’s Capital Markets Reform Agenda. Commentary 722. Toronto: C.D. Howe Institute. Link
- DeLand, Charles, and Brad Gilmour. 2024. Smoothing the Path: How Canada Can Make Faster Major-Project Decisions. Commentary 661. Toronto: C.D. Howe Institute. Link
- Edwards, Gary. 2025. Regulatory Reset: A Policy Roadmap for Expanding Financial Advice to Middle- and Lower-Income Canadians. Commentary 693. Toronto: C.D. Howe Institute. Link
- Fariha, Tasnim. 2025. “Building Smarter, Faster: Technology and Policy Solutions for Canada’s Housing Crisis.” E-Brief 376. Toronto: C.D. Howe Institute. Link
- Koeppl, Thorsten V., and Jeremy Kronick. 2020. Open Banking in Canada – The Path to Implementation. Commentary 579. Toronto: C.D. Howe Institute. Link
- Lester, John. 2025. An Economic Strategy for Canada’s Next Government. Special Policy Report. Toronto: C.D. Howe Institute. Link
- Mahboubi, Parisa, and Tingting Zhang. 2026. 2025 Labour Market Review: Trade Uncertainty, Structural Pressures, and Policy Priorities for Canada. Commentary 718. Toronto: C.D. Howe Institute. Link
- Manucha, Ryan. 2025. Eyes on the Prize: A Game Plan to Speed Up Removal of Internal Trade Barriers in Canada. E-Brief 370. Toronto: C.D. Howe Institute. Link
- Marshall, David. 2022. Time for a Tune-up: Reforms to Private-Sector Auto Insurance could Lower Costs and Add Value for Consumers. Commentary 619. Toronto: C.D. Howe Institute. Link
- Schwanen, Daniel. 2025. “A Backgrounder on Remaining Barriers to Internal Trade within Canada.” Intelligence Memo. Toronto: C.D. Howe Institute. Link.
- Vegh, George, and Kate Koplovich. 2026. Clear the Way: Does the Building Canada Act Help Canada Build? Commentary 728. Toronto: C.D. Howe Institute. Link
Competition
Competitive markets push firms to innovate, cut costs, and treat customers well. Protected markets let incumbents coast instead, and productivity stagnates as a result. Canada has let concentration take hold in many of the sectors where competition would matter most – postal service, telecommunications, dairy, and financial services – insulating established players from many of the pressures that drive real productivity gains, whether they come from new rivals, new technology, shifting consumer preferences, or trade agreements. Exposure to competition, foreign and domestic, is one of the strongest levers Canada has to raise productivity, and in several of these sectors that lever remains underused.
Open the door to competition
Canada Post is losing money, but raising mail prices or expanding into new markets will only make things worse. Both options let a crown corporation lean on its legal monopoly instead of fixing its core issues. While Ottawa is already cutting costs by replacing door-to-door delivery with community mailboxes, this leaves the underlying legal structure untouched. A more complete fix would separate what Canada Post must do from what it gets to protect: end its exclusive legal privilege over letter mail, replace the universal service obligation with a direct subsidy or competitive tender for high-cost routes, and create an independent postal regulator, since Canada remains the only major Western economy without one (De Lorenzi 2026).
Telecommunications carries the same problem in a different form. Three companies still control the overwhelming majority of the Canadian market, largely because foreign ownership restrictions have kept outside competitors, and their capital, on the sidelines for decades. Lifting those restrictions would let firms like AT&T or Verizon compete directly for Canadian customers, precisely the kind of pressure that durably pushes prices down and service up (Goldman, Schwartz, and Taylor 2023). The same regulator responsible for policing telecom access, the Canadian Radio-television and Telecommunications Commission (CRTC), is also the natural home for the new postal regulator proposed above, giving one agency jurisdiction over two sectors where Canada has let a handful of firms operate largely unchallenged.
Reform dairy supply management
Canada’s dairy supply management system raises prices, limits consumer choice, and shields farmers from the competitive pressure that would otherwise push the industry to become more efficient. Eliminating the system outright is not realistic given how entrenched it is, but targeted reform is. The board that sets dairy policy should include members with expertise in consumer interests and competition, not only industry representation. Price increases should be tied to actual productivity gains on dairy farms, not simply granted to offset rising costs. And Ottawa should reclaim its own authority over interprovincial and export dairy trade, currently delegated to the provinces, so provinces that want to allow freer movement of milk across borders can do so (Busby and Schwanen 2013). The case for reform is over a decade old and still unaddressed, itself evidence of how hard entrenched interests are to dislodge even when the argument for change is clear.
Make financial services compete harder
Financial services businesses face barriers to entry that are subtle but no less significant. Canada’s Competition Bureau has identified specific provincial-level barriers to entry across the economy that provinces could remove on their own, without waiting on Ottawa (Hodgson and Busby 2026). Beyond removing barriers, Canada’s financial regulators should be given an explicit mandate to promote competition, the way the United Kingdom’s Financial Conduct Authority already does, so competitive pressure becomes something regulators actively weigh rather than an afterthought (Kronick and Omran 2021).
Credit unions illustrate the cost of fragmentation directly. Since 2012, credit unions have been able to switch from provincial to federal regulation to operate nationally, but few have, because the switch is expensive and complex. A passport system, letting a credit union stay under its home province’s regulation while still serving members elsewhere in the country, would let smaller institutions compete nationally without paying for a full regulatory conversion (Losier 2025).
Set AI competition rules before problems set in
Artificial intelligence (AI) is still young enough that Canada can get its competition policy right early, rather than fixing it after problems take hold. The Competition Bureau should issue clearer, more specific guidelines on what anti-competitive conduct in AI actually looks like, rather than broad language. It should also engage directly with AI companies ahead of major mergers and partnerships, rather than reviewing them only afterward. Ottawa should also apply a flexible, sandbox-style approach to collaborations between large firms and smaller innovators, as some partnerships that appear to reduce competition can still foster innovation. And because AI companies operate globally, Canada should judge competition in the sector by whether smaller players can access the inputs they need – data, computing power, research capacity – rather than by how large a firm’s Canadian market share happens to be (Schwanen 2026).
References
- Busby, Colin, and Daniel Schwanen. 2013. Putting the Market Back in Dairy Marketing. Commentary 374. Toronto: C.D. Howe Institute. Link
- De Lorenzi, Erik. 2026. Untying the Gordian Knot: Reforming Canada’s Postal Market. Commentary 721. Toronto: C.D. Howe Institute. Link
- Goldman, Calvin, Larry Schwartz, and Richard Taylor. 2023. “How Outdated Foreign Ownership Rules Hurt Competition in Telecom and Other Sectors.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Hodgson, Glen, and Colin Busby. 2026. “Canada’s Tariff Problem Made in Canada.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Kronick, Jeremy M., and Farah Omran. 2021. “Upping Our Game: How Canada’s Financial Sector Can Spur Economic Performance.” E-Brief 314. Toronto: C.D. Howe Institute. Link
- Losier, David. 2025. “Time for the Credit Union Passport System.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Schwanen, Daniel. 2026. Chipping In: A Canadian Guide for Maintaining Competition in AI. Commentary 713. Toronto: C.D. Howe Institute. Link
Human Capital
Productivity depends on the skills, knowledge, and adaptability of the workforce. Canada’s immigration system, credential recognition processes, and skills pipeline all shape the human capital available to employers. In recent years, immigration policy drifted toward temporary, lower-skilled admissions, and newcomers with strong credentials routinely end up in jobs well below their qualifications. Closing that gap, and restoring a selection system built on merit, would help raise productivity.
Restore merit to immigration selection
Canada’s skilled immigration system ran for two decades on a points system where one would apply, and then be ranked on education, language, and experience. The highest scorers got in. In 2023, Ottawa quietly gave itself the power to bypass that ranking through targeted, category-based draws, prioritizing specific occupations or French-language ability over the applicants who would actually perform best in the labour market. The change squeezes out highly skilled candidates and has drawn little public debate (Green, Oreopoulos, Riddell, Skuterud, and Worswick 2025).
Ottawa should return to relying on the Comprehensive Ranking System, adding proven predictors of success it currently ignores: educational institution and field of study, official language proficiency, a minimum points floor below which nobody qualifies, and pre-admission earnings, an important predictor of post-arrival outcomes the current system leaves out entirely (Mahboubi 2024). A joint federal-provincial agency should also assess the quality of foreign educational institutions and programs directly so the credentials used in immigration applications are properly verified (Lester 2025).
Raise standards in temporary admission streams
International student numbers collapsed after Ottawa tightened admission caps rather than raising admission standards. As a result, applications fell because students no longer see a credible path to stay, not because Canada asked more of them. The right fix is raising the bar, not just cutting the ceiling, and restoring predictability for students by reinstating limits on off-campus work (Mahboubi and Skuterud 2024).
On temporary foreign workers, Canada should preserve high-skill streams like the Global Talent Stream while sharply reducing reliance on low-wage labour and updating a $1,000 employer fee that has not changed in years (Skuterud 2025). The rules for becoming a permanent resident should stay consistent, not shift case by case. Ad hoc pathways to permanent status signal that arriving temporarily might eventually pay off, drawing in more temporary residents and growing the very population these programs were meant to shrink.
Two further gaps deserve attention. Canada selects few business immigrants for their entrepreneurial capacity, even though their capital and know-how could lift business investment, itself one of Canada’s weakest links (Mahboubi 2024). And immigration levels should be set against a clear objective, raising GDP per capita, rather than simply hitting an annual admissions target (Doyle, Skuterud and Worswick 2024).
Put newcomers’ skills to work
Even well-selected immigrants often cannot work in the fields they trained for. Provinces should work with regulatory bodies to speed up foreign credential and work-experience recognition, following Australia’s lead in cutting red tape for internationally trained professionals (Mahboubi and Zhang 2023). Provinces should also let prospective immigrants start the credential and licensing process before they arrive through pre-arrival assessments and mutual recognition agreements with trusted source countries so newcomers can work in their field from day one instead of waiting months to be re-credentialed (Mahboubi and Zhang 2024).
Employers, especially small and medium-sized businesses, also need a comprehensive database of program equivalencies so they can properly judge what a foreign credential is actually worth. The assessment process itself needs modernizing too: a single digital entry point across provinces, with standard forms, standard fees, and public reporting on processing times, would replace the patchwork mobile workers currently have to navigate one province at a time. General licensing harmonization across provinces is addressed elsewhere in this framework, under Regulation, since that problem is regulatory in nature rather than specific to immigrants.
Strengthen the education pipeline
Canadian education should also build innovation-based skills at every level. Primary and secondary schools should focus on preparing students to adapt to uncertainty in a fast-changing economy (Howitt 2015).
Canadian students’ math performance has declined for years, and the causes start with how teachers are trained. Faculties of education should require future teachers to demonstrate strong math skills before certification, not only pedagogical theory. Provinces should test students more often and more rigorously, check basic fluency, like times tables, by Grade 4, and screen every student from kindergarten through Grade 8 early enough to intervene (Stokke 2026). Banning smartphones in classrooms and revising curricula that have drifted toward open-ended methods, at the expense of reliable arithmetic fundamentals, would help as well (Stokke 2024).
Postsecondary programs should emphasize creativity and involve undergraduates in research earlier. And colleges should keep training people for the specific, in-demand skills the economy still needs, since not everyone will work in innovation-driven roles (Howitt 2015).
Match skills to where the economy is going
Better labour market information is needed. Employment and Social Development Canada should expand its Occupational and Skills Information System into a forward-looking database tracking emerging occupations so training programs are not misaligned with where jobs are actually growing. A coordinated strategy involving educational institutions, industry, and government would also help workers build AI-relevant skills, with extra support for small and medium-sized firms that lack the resources to assess their own skills needs. And workers displaced by trade shocks need a faster path back to work: matching their existing skills to compatible vacant roles, then funding targeted retraining for the specific gap, works better and faster than broad retraining programs (Mahboubi and Zhang 2026).
Employment Insurance has a design problem too. Eligibility and benefit length currently vary by regional unemployment rate, a design meant to protect seasonal workers that instead creates pockets of chronic high unemployment and discourages people from moving to regions where jobs are actually available. Ottawa should replace these regional rules with uniform, national eligibility and benefit standards tied to the national unemployment rate (Busby and Gray 2011).
References
- Busby, Colin, and David Gray. 2011. Mending Canada’s Employment Insurance Quilt: The Case for Restoring Equity. Backgrounder 144. Toronto: C.D. Howe Institute. Link
- Doyle, Matthew, Mikal Skuterud, and Christopher Worswick. 2024. Optimizing Immigration for Economic Growth. Commentary 662. Toronto: C.D. Howe Institute. Link
- Green, David, Philip Oreopoulos, Craig Riddell, Mikal Skuterud, and Christopher Worswick. 2025. “How We Subverted Our Skills-Based Immigration System.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Howitt, Peter. 2015. Mushrooms and Yeast: The Implications of Technological Progress for Canada’s Economic Growth. Commentary 433. Toronto: C.D. Howe Institute. Link
- Lester, John. 2025. An Economic Strategy for Canada’s Next Government. Special Policy Report. Toronto: C.D. Howe Institute. Link
- Mahboubi, Parisa. 2024. Quality Over Quantity: How Canada’s Immigration System Can Catch Up With Its Competitors. Commentary 654. Toronto: C.D. Howe Institute. Link
- Mahboubi, Parisa. 2025. “Immigration Reform Begins with Simplifying the System.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Mahboubi, Parisa, and Mikal Skuterud. 2024. “A Multi-Pronged Strategy for Managing Canada’s Surging Non-Permanent Resident Population.” Intelligence Memo. Toronto: C.D. Howe Institute. Link.
- Mahboubi, Parisa and Tingting Zhang, 2023. “Our Underemployed Economic Immigrants: How to Stop Wasting Talent.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Mahboubi, Parisa, and Tingting Zhang. 2024. Harnessing Immigrant Talent: Reducing Overqualification and Strengthening the Immigration System. Commentary 672. Toronto: C.D. Howe Institute. Link
- Mahboubi, Parisa, and Tingting Zhang. 2026. 2025 Labour Market Review: Trade Uncertainty, Structural Pressures, and Policy Priorities for Canada. Commentary 718. Toronto: C.D. Howe Institute. Link
- Skuterud, Mikal. 2025. “A Realistic Strategy to Wean Canadian Businesses Off Low-Skill Foreign Labour.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Stokke, Anna. 2024. “Reversing the Decline in Canadian Math Scores.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Stokke, Anna. 2026. “How to Fix Math Education in Canada.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
Innovation, Technology, and Commercialization
Canada produces excellent research but too often allows commercialization to happen elsewhere. The gap between scientific output and real-world application shows up in weak business research and development (R&D) spending and thin technology adoption relative to Canada’s research strength. Closing that gap means redesigning the incentives, not just funding more research.
Rebalance the R&D tax credit
Canada’s main R&D tax credit, the Scientific Research and Experimental Development program (SR&ED), still favours small firms in its rate structure: 35 percent for eligible small firms versus 15 percent for large ones, even though small firms do not generate more benefit per dollar spent. Ottawa should rebalance those rates, cutting the small-firm rate to 25 percent and raising the large-firm rate to 20 percent. Recent reforms have already moved on a related front: refundability now extends to some public corporations, not just private ones, and the expenditure limit for the enhanced rate has doubled to $6 million. About a dozen other programs still top up SR&ED, creating duplicate subsidies; Ottawa should eliminate the overlap and redirect programs like the Industrial Research Assistance Program toward commercializing Canadian ideas instead of funding research SR&ED already covers (Lester 2025).
Coordinate government innovation support
The federal government runs a crowded landscape of overlapping innovation-support programs, and the solution is better coordination, not more programs. Programs should share data and resources to eliminate redundant application processes, and government should do more to encourage firms that have never applied for support to do so since fewer than half of eligible companies currently use these tools. Public procurement is an underused lever too: early government adoption of new technology, common in construction, transportation, and healthcare, gives firms a stable environment to test and validate their products before a wider market does (Beaudry 2025).
Build the AI economy
Canada ranks second globally in AI researchers but only 20th among Organisation for Economic Co-operation and Development (OECD) countries in business AI adoption. Greater use of two mechanisms would help close the gap between research and application: a federally funded matchmaking service to pair companies with AI academics, and dedicated research teams combining an AI expert, an industry partner, and an academic domain specialist to apply cutting-edge methods directly to real problems. Universities should also expand AI training well beyond computer science, covering general literacy, executive education, and training for workers already on the job (Leyton-Brown et al. 2025).
On infrastructure, all levels of government should streamline approvals for data centre development, invest in computing access for smaller firms and researchers, update outdated privacy law to give AI developers clarity, and move quickly on Ottawa’s already-funded TechStat program, since Canada currently has almost no data on how businesses are actually adopting AI (Wyonch 2026).
Turn university research into companies
Canadian businesses spend less on R&D than their US counterparts, which weakens the pipeline that turns university discoveries into companies. Federal granting agencies should fund research based on academic excellence, not immediate commercial payoff, since the strongest science still produces the most valuable spillovers. University technology transfer offices should focus on building relationships between researchers and business rather than chasing licensing revenue. They should also face real competition rather than holding a monopoly over a university’s commercialization efforts. National Research Council institutes should focus on connecting universities and industry rather than conducting research themselves. Journal articles based on publicly funded research should be freely available. Ottawa should also adopt a standard national protocol, modelled on the UK’s approach, to give businesses greater clarity when partnering with universities (Howitt 2013). This recommendation dates to 2013, and little of it has been acted on since – a reminder that Canada’s university commercialization gap is a policy choice, not a new problem.
Close two sector-specific gaps
Two narrower, sector-specific items are worth noting. Ottawa should help de-risk the shift to factory-built housing with low-cost financing, tax credits, and CMHC insurance tailored to modular construction, paired with harmonized transportation rules so finished units can cross provincial lines without running into conflicting provincial regulations (Fariha 2025). And years after Payments Canada’s Real-Time Rail system was first proposed, Canada still lacks the instant, account-to-account payments most peer countries already have; the Department of Finance should set a clear regulatory path and open the system to new payment providers (Kronick and Koeppl 2023).
References
- Beaudry, Catherine. 2025. Unleashing Innovation: Barriers, Government Support Programs, and What Works Best. Commentary 689. Toronto: C.D. Howe Institute. Link
- Fariha, Tasnim. 2025. Building Smarter, Faster: Technology and Policy Solutions for Canada’s Housing Crisis. Toronto: C.D. Howe Institute. Link
- Howitt, Peter. 2013. From Curiosity to Wealth Creation: How University Research Can Boost Economic Growth. Commentary 383. Toronto: C.D. Howe Institute. Link
- Kronick, Jeremy M., and Thorsten Koeppl. 2023. The Need for Speed: The Benefits of Faster Payments and How to Achieve Them. Commentary 650. Toronto: C.D. Howe Institute. Link
- Lester, John. 2025. An Economic Strategy for Canada’s Next Government. Special Policy Report. Toronto: C.D. Howe Institute. Link
- Leyton-Brown, Kevin, Cinda Heeren, Joanna McGrenere, Raymond Ng, Margo Seltzer, Leonid Sigal, and Michiel van de Panne. 2025. “AI Is Not Rocket Science: Ideas for Achieving Liftoff in Canadian AI Adoption.” Verbatim. Toronto: C.D. Howe Institute. Link
- Wyonch, Rosalie. 2026. From Hype to Output: How AI Investment Translates to Real Productivity Gains. Commentary 712. Toronto: C.D. Howe Institute. Link
Business Growth: From Formation to Scale
Canada has too many small firms that stay small. This matters because larger firms are more productive, pay higher wages, invest more in technology, and export more. The policy environment, from the small business deduction to government lending programs, has in places actively discouraged growth past the thresholds at which preferential support retrenches, and government subsidies too often reward firms for existing rather than for growing. Even where capital is available, many Canadian firms lack the marketing and sales capability to turn it into scale. Reforming business supports to reward growth, not size, is a higher-return use of public resources.
Expand access to capital and reward growth
Canadian small and mid-sized firms pay more to borrow than their peers in other advanced economies, and Canada’s largest lending channel, mortgages, offers banks a practically risk-free alternative that crowds out business lending in the first place. Mortgage insurance pricing does not currently account for differences in default risk, so restructuring those premiums would free up more capital for business lending without weakening the mortgage system itself.
Younger firms carry a heavier burden too: the fees attached to loans under the Canada Small Business Financing program add real cost precisely when a young company can least afford it, and restructuring those fees, along with expanding Export Development Canada’s tools to help exporters manage currency risk, would ease the strain at exactly the growth stages Canada needs to support. Firms in a temporary downturn but with real potential to recover need a different kind of help: expanding the Business Development Bank of Canada’s advisory capacity and offering entrepreneur-tailored financial education would help put them back on track, not just extend more credit. More competition in lending, including through open banking, would help across the board (Nitani and Nusrat 2023; Omran and Kronick 2019).
Equity capital points to a similar story at an earlier stage. Firms seeking the first few million dollars in outside investment face a persistent shortage of supply, even as foreign investors dominate the largest venture deals in Canada, a dynamic that pushes many promising companies to scale up in the United States instead. The Business Development Bank of Canada should shift its seed financing toward gender-neutral criteria and invest more in these high-tier deals. A new national co-investment fund, modelled on existing federal programs, could help fill the funding gap for smaller deals, where private capital is often insufficient (Lester 2025). Opening more public infrastructure to institutional investment would also give Canadian private equity investors more opportunities to invest at home instead of looking abroad. Preferential tax treatment should shift too, from small firms broadly to young firms specifically, so companies are rewarded for growing rather than staying small just to keep a tax break (Schwanen, Kronick and Omran, 2019; Howitt 2015).
Redirect focus from research to selling
Canada has more careers in marketing and sales than in research and development, yet government support skews heavily toward the latter. In a study of Canadian and US software firms, Canadian companies spent more on R&D than their American counterparts as a share of revenue, yet substantially underspent them on marketing and sales. Ottawa should redirect some savings from SR&ED toward marketing and sales programming, including support for costs like trade show attendance, and set clear, public objectives and metrics for business growth, since productivity concerns rarely translate into concrete departmental targets today (Plant 2023).
Rein in business subsidies
Business subsidies have grown 125 percent since 2015, reaching $37.4 billion, and about a third act as pure income transfers rather than fixes for any real market failure. Ottawa should review these programs and slow the growth of industrial policy subsidies specifically, which have been rising three times faster than GDP; capping that growth at half the pace of GDP through 2030 would save roughly $3.3 billion a year that could fund reforms with a far higher return (Lester 2025).
References
- Howitt, Peter. 2015. Mushrooms and Yeast: The Implications of Technological Progress for Canada’s Economic Growth. Commentary 433. Toronto: C.D. Howe Institute. Link
- Lester, John. 2025. An Economic Strategy for Canada’s Next Government. Special Policy Report. Toronto: C.D. Howe Institute. Link
- Nitani, Miwako, and Aurin Shaila Nusrat. 2023. Scaling Up Is Hard To Do: Financing Canadian Small Firms. Commentary 644. Toronto: C.D. Howe Institute. Link
- Omran, Farah, and Jeremy Kronick. 2019. Productivity and the Financial Services Sector – How to Achieve New Heights. Commentary 555. Toronto: C.D. Howe Institute. Link
- Plant, Charles. 2023. The Missing Ingredient: Solving Canada’s Shortcomings in Growing Large Firms and Increasing Productivity. Commentary 645. Toronto: C.D. Howe Institute. Link
- Schwanen, Daniel, Jeremy Kronick, and Farah Omran. 2019. “Leveraging Private Equity Energy to Fuel Small Business Development.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
Trade, Transportation, and Supply Chains
Canada’s productivity problem is partly a logistics problem. Bottlenecks at seaports and airports, constraints on rail capacity, and inefficiencies in road transport hinder trade flows, diversification, and the movement of people and goods. As Canada seeks to diversify its trade relationships, improving the infrastructure that supports trade is an increasingly important policy priority.
Clear Canada’s port and rail capacity bottlenecks
Canada’s ports are not ready for the trade diversification the government wants. On the World Bank’s Container Port Performance Index, Vancouver ranks 375th out of 400 ports worldwide, Montreal 338th, Prince Rupert 322nd, and Saint John 268th. Only Halifax, at 29th, shows what is possible. Canada’s global rank for ship capacity moving through its ports fell from sixth to 23rd between 2016 and 2023, and Transport Canada itself has acknowledged that the sector has posted the weakest productivity growth in the G7 for 25 years (Lammam 2026a).
The bottleneck at Vancouver is nuanced. Containers wait nearly six days for a train against the port’s own three-day target, meaning rail capacity, not crane speed, is what determines how long a ship sits idle. How that capacity gets negotiated matters too: one terminal installed automated cranes before reaching a labour agreement and faced years of disputes and a lockout, while a nearby terminal negotiated first and has had zero labour disruptions in five years, with rail capacity up more than half (Lammam 2026b). The same logic applies to reducing work stoppages more broadly: from 2014 to 2023, Canada lost more working days to labour disruptions per employee than any other G7 country with comparable data, and earlier mediation before disputes escalate into strikes or lockouts would help across the economy, not just at ports (Lammam 2026b). Ottawa should treat rail capacity and labour sequencing as central to how it evaluates port investment.
Rail policy elsewhere reinforces the same lesson. An 18-month pilot that extended regulated interswitching to 160 kilometres in the Prairies lapsed in March 2025 without being renewed, effectively validating the case against extending it: mispriced rail access risks discouraging the investment in capacity that ports like Vancouver actually need (Dachis 2023). Shippers continue to push for its return, so the underlying question is not settled, but the evidence favours holding the line.
Foster private investment at airports
On September 15, 2026, Ottawa announced it will seek long-term concessions to operate Canada’s four largest airports, Toronto Pearson, Montreal-Trudeau, Calgary, and Vancouver, while retaining ownership of the underlying land and assets and reinvesting proceeds into smaller regional airports. That is a narrower step than what C.D. Howe Institute research supports: outright privatization, with participation from private equity and pension funds, following the Australian model of price monitoring to guard against abuse of market power (Lester 2025). As the details of Ottawa’s consultation process take shape, it should draw on that evidence, particularly the case for price monitoring conditions, rather than treat this as untested ground.
A separate body of research points to a related set of fixes: eliminating remaining aviation fuel taxes, raising the foreign ownership limit on Canadian airlines to 49 percent, and applying the Official Languages Act test of bilingual service “where numbers warrant” to Air Canada and airport authorities in place of stricter rules, and ending the requirement that Air Canada keep its head office and maintenance centres in specific cities. The federal government should also auction off remaining airport authority leases, starting with the smallest airports before moving to the largest, and eventually eliminate foreign ownership restrictions on airlines entirely while renegotiating more open skies agreements with the United States and Europe (Dachis 2014).
Diversify trade and build the infrastructure to support it
In addition to new agreements, genuine trade diversification requires the infrastructure to use them. Ottawa should extend the National Trade Corridors Fund beyond its current 2027/28 end date, committing at least $500 million a year to relieve bottlenecks and build climate resilience, and support private investment in supply chain tracking technology (Lester 2025). As the 2026 Canada-United States-Mexico Agreement (CUSMA) negotiations persist, Canada should defend the mutual benefits of North American integration while reducing its exposure to any single market, completing trade agreements with the United Kingdom and the Association of Southeast Asian Nations (ASEAN) (Robson and Bafale 2025). Access to large markets also drives innovation directly, since it raises the likelihood that a new idea gets rewarded and lets firms spread R&D costs over more customers; simpler customs procedures, lower tariffs on innovation-intensive goods, and easier mobility for the people who market and operate them all support this goal (Schwanen 2017). Major infrastructure projects should also treat Indigenous economic participation as central to their success rather than an afterthought, with the new Canada Indigenous Loan Guarantee Corporation put to full use and a dedicated Indigenous Development Bank considered as a further step (Lester 2025).
References
- Dachis, Benjamin. 2014. Full Throttle: Reforming Canada’s Aviation Policy. Commentary 398. Toronto: C.D. Howe Institute. Link
- Dachis, Benjamin. 2023. “Budget 2023 Interswitching Changes will Derail Supply Chains.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Lammam, Charles. 2026a. “Trade Diversification Ambitions Face a Container Port Reality.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Lammam, Charles. 2026b. “Canada’s Ports Needed Fixing Long Before Trump and Export Diversification Hove into View.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Lester, John. 2025. An Economic Strategy for Canada’s Next Government. Special Policy Report. Toronto: C.D. Howe Institute. Link
- Robson, William B.P., and Mawakina Bafale. 2025. Canada’s Investment Crisis: Shrinking Capital Undermines Competitiveness and Wages. Commentary 699. Toronto: C.D. Howe Institute. Link
- Schwanen, Daniel. 2017. Innovation Policy in Canada: A Holistic Approach. Commentary 497. Toronto: C.D. Howe Institute. Link
Fiscal Policy and Government Productivity
Government spending and public sector performance both shape Canada’s productivity. A growing debt burden can crowd out private investment and, at current levels, limit the country’s ability to respond to the next crisis. Public sector productivity has fallen even as public sector employment has grown much faster than the private sector, a divergence that drags down Canada’s overall productivity numbers. Addressing both problems would free up resources for higher-value use across the economy and boost productivity.
Reduce debt and rein in spending
Canada’s public debt burden limits its ability to respond to future shocks and crowds out private investment. Federal and provincial governments together should aim to cut net debt by about 10 percentage points of GDP (Lester and Laurin 2025). Returning program spending to its average share of GDP between 2003 and 2020 would reduce spending by roughly $66 billion by 2030 and largely close the gap on its own. Rising global bond yields make this more urgent, since Canada currently borrows about a percentage point cheaper than the United States, and that advantage is not guaranteed to last (Drummond 2026).
Governments should also present realistic fiscal baselines rather than the overly optimistic growth projections now common across federal and provincial budgets, and set a credible path back to balance within a politically relevant period, roughly four years. The pressure to act is only growing: meeting Canada’s North Atlantic Treaty Organization (NATO) defence spending commitment alone will push core defence spending from about $35 billion in 2024/25 to $85 billion by 2029/30 and $147 billion by 2034/35 (Drummond, Robson and Laurin 2026).
The system for managing that spending needs reform too. Refundable tax credits and comparable programs delivered through the tax system currently escape the performance framework that applies to regular spending, and they should be brought inside it. Every program should face a genuine value-for-money test using the same benefit-cost framework already used for regulatory proposals, rather than the current five-year evaluation cycle that applies uniformly regardless of a program’s size or risk. Binding multi-year spending plans, set at the start of a government’s mandate, would give evaluations real weight, since programs rarely get weeded out without a self-imposed constraint forcing the choice (Lester 2024).
Raise public sector productivity
Public sector employment has expanded much faster than private sector employment in recent years, and since measured public sector productivity has been declining over the same period, it is dragging down Canada’s overall productivity numbers. The federal government has already committed to reducing its workforce by roughly 16,000 positions over three years, a step that may ease some of that drag. Ottawa should also adopt a comprehensive public sector productivity measure that a federal working group already proposed and Treasury Board has yet to act on, so progress can actually be tracked (Mahboubi and Zhang 2026).
Several practical changes inside government would help close the gap. Using AI tools to screen candidates and removing barriers to moving existing staff between roles would let government reallocate people faster than current hiring processes allow. Modernizing outdated internal data systems would give managers the timely operational information they currently lack, catching problems before they grow expensive. Many employees were never properly trained on software the government has already paid for, so a focused training push would raise output without buying anything new. Frontline managers are often asked to lead productivity improvements without training in how to actually do it, and structured change-management training would help reforms stick past the first year or two. Consolidating overlapping program streams, in areas like immigration and Employment Insurance, would cut administrative burden that even staff struggle to navigate (Wernick 2024). Reforms like these need sustained, cross-partisan commitment, since efficiency gains that mean a smaller workforce, handled fairly, or upfront investment ahead of savings, tend to get reversed once a single election cycle turns (Wernick 2024).
Reform healthcare payment models
Canadian provinces spend heavily on healthcare but get comparatively poor results on access and care coordination, largely because of how they pay for services. Ottawa should establish a national centre of excellence to develop and share integrated payment models across provinces, involving physician associations directly in their design. Physician leadership has been essential to the success of similar reforms elsewhere. Provinces should also assess their own readiness on data and analytical capacity, consider adopting best practices in other provinces, and test new payment approaches through limited demonstration projects before rolling them out broadly (Sutherland and Hellsten 2017).
Fund infrastructure smartly
Infrastructure spending also needs fiscal discipline. Provinces should expand road pricing where feasible, both to fund highway spending and relieve congestion, following Ontario’s early steps with a tolled highway lane. Cities should adopt the same accounting standards used by higher levels of government, so the long-term costs of infrastructure get matched properly against the long-term revenue that pays for it. Ottawa should target its own infrastructure spending toward projects with the largest spillovers across governments and rely more on public-private financing where it reduces the economic cost of raising taxes to pay for projects directly (Dachis 2016). Selling select government assets, in categories like municipal parking and airport infrastructure, could also help fund projects private investors are not interested in on their own, though the case for this (Dachis 2017) rests on valuations that need updating.
References
- Dachis, Benjamin. 2016. “Getting More Buildings for our Bucks: Canadian Infrastructure Policy in 2016.” E-Brief 225. Toronto: C.D. Howe Institute. Link
- Dachis, Benjamin. 2017. “How to Kickstart the Infrastructure Spending Boom.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
- Drummond, Don. 2026. “The Endgame: Time to Act on Canada’s Economic and Fiscal Challenges.” Verbatim. Toronto: C.D. Howe Institute. Link
- Drummond, Don, William B.P. Robson, and Alexandre Laurin. 2026. “Fiscal Fantasy: Believe It or Not, Fiscal Reality Hasn’t Gone Away.” E-Brief 382. Toronto: C.D. Howe Institute. Link
- Lester, John. 2024. “Minding the Purse Strings: Major Reforms Needed to the Federal Government’s Expenditure Management System.” E-Brief 359. Toronto: C.D. Howe Institute. Link
- Lester, John, and Alexandre Laurin. 2025. Canada’s Debt Problem: What Can Be Done? A Report on the Institute’s 2024 Debt Conference. Commentary 675. Toronto: C.D. Howe Institute. Link
- Mahboubi, Parisa, and Tingting Zhang. 2026. 2025 Labour Market Review: Trade Uncertainty, Structural Pressures, and Policy Priorities for Canada. Commentary 718. Toronto: C.D. Howe Institute. Link
- Sutherland, Jason M., and Erik Hellsten. 2017. Integrated Funding: Connecting the Silos for the Healthcare We Need. Commentary 463. Toronto: C.D. Howe Institute. Link
- Wernick, Michael. 2024. “Unlocking Productivity in the Public Sector: Focusing on Internal Services.” Intelligence Memo. Toronto: C.D. Howe Institute. Link
Stay Informed
Get the Productivity Blueprint research delivered to your inbox.