Article – The bill comes due eventually—it’s a truth as old as commerce itself. For Canada, that moment of financial reckoning appears to be approaching, and TD Economics has just sounded the alarm with stark clarity.
In a newly published report, TD Bank’s economic research team warns that Canada’s economic competitiveness is being steadily undermined by a combination of tax burdens and regulatory complexities that many Canadians might not fully appreciate in their day-to-day lives.
“We’re facing a silent killer of Canadian productivity and investment,” explains Francis Fong, managing director of economic research at TD Bank. “The accumulated weight of regulatory requirements combined with our tax structure is creating substantial friction in our economy.”
What makes this assessment particularly troubling is the timing. As the global economy undergoes a period of recalibration following pandemic disruptions, Canada appears to be lagging behind peer nations in creating conditions that attract investment capital and foster business growth.
The report highlights several concerning metrics. Business investment in Canada has grown at half the rate seen in the United States over the past decade. Meanwhile, productivity growth—the essential ingredient for raising living standards—has essentially flatlined, averaging just 0.7% annually since 2015, well below the 1.3% seen in the U.S.
“When businesses spend more time navigating regulatory hurdles than developing new products or expanding operations, that’s a drag on the entire economy,” notes Beata Caranci, chief economist at TD.
This isn’t just a technical economic concern. The real-world implications touch Canadian households directly. When businesses invest less, they create fewer jobs. When productivity stagnates, so do wages. The connection between these macroeconomic indicators and kitchen table issues is direct, if not always immediately visible.
The federal government has responded to previous competitiveness concerns with targeted tax incentives and programs. However, TD’s analysis suggests these measures have been insufficient to overcome the structural challenges. Tax credits for specific industries, while helpful in narrow contexts, don’t address the broader regulatory environment that affects businesses across all sectors.
What’s particularly striking in TD’s assessment is the comparison to other developed economies. Canada now ranks 15th among OECD countries in terms of regulatory efficiency—a slide from previous positions. This decline matters because, in an interconnected global economy, capital flows to jurisdictions offering the most favorable conditions.
“Investment doesn’t recognize national loyalty,” explains Pedro Antunes, chief economist at the Conference Board of Canada, who wasn’t involved in the TD report but whose research has reached similar conclusions. “Capital seeks the highest risk-adjusted returns, and increasingly, that calculation is leading away from Canada.”
The Bank of Canada’s recent interest rate cuts—while necessary to manage inflation and support economic growth—can’t solve these structural issues alone. Monetary policy can influence short-term borrowing costs, but it can’t streamline permit approvals or reduce compliance burdens.
What would meaningful reform look like? TD’s economists suggest several approaches, including regulatory harmonization between provinces, systematic review of existing regulations to eliminate redundancies, and a more competitive overall tax structure.
Some provincial governments have already begun addressing these issues. Alberta’s “Red Tape Reduction Implementation Act” aims to eliminate unnecessary regulatory burdens, while Ontario has implemented a “one-in, one-out” approach to new regulations, requiring that a regulation be removed for each new one introduced.
However, the federal government faces difficult trade-offs. Regulatory systems often serve important public purposes—protecting consumers, ensuring environmental standards, and maintaining workplace safety. The challenge isn’t eliminating regulation wholesale, but designing systems that achieve these goals with minimal economic friction.
The situation becomes more complex when considering Canada’s additional challenges: housing affordability issues, infrastructure gaps, and demographic pressures from an aging population. Each of these factors further complicates the competitiveness equation.
“We’re dealing with a perfect storm of structural challenges,” says Fong. “The good news is that addressing regulatory efficiency is something largely within our control, unlike global economic conditions or resource prices.”
For everyday Canadians, the implications of this report might seem abstract, but the connection to their financial well-being is real. When businesses face excessive costs to operate in Canada, those costs eventually flow through to consumers through higher prices, fewer jobs, or reduced wage growth.
The report doesn’t suggest Canada is in immediate economic peril—the country maintains significant advantages, including a highly educated workforce, stable political system, and abundant natural resources. Rather, it warns of a gradual erosion of competitive position that could become increasingly difficult to reverse if left unaddressed.
As Canadian policymakers consider their economic priorities for the coming years, TD’s warning serves as a reminder that prosperity isn’t guaranteed. It requires deliberate choices and sometimes difficult trade-offs between competing public objectives.
“The most concerning aspect isn’t where we stand today,” concludes Caranci, “but the trajectory we’re on if these issues remain unaddressed.”
