If the Canadian government wants to make headway with the incoming U.S. administration, it should look at scrapping some sticking-point policies, such as the controversial digital services tax, former Liberal finance minister Bill Morneau says.
“I would move away from that, and think about the other places that we have a mutual interest in moving forward,” Morneau told CTV’s Question Period host Vassy Kapelos in an interview airing Sunday. “And do that in a way that’s calm and that recognizes that we need to have an enduring ability to work together.”
Morneau said that in dealing with U.S. president-elect Donald Trump — and his looming threat of tariffs on Canadian imports — the federal government should look for issues on which the two countries can work together, as opposed to ones that “can inflame differences.”
The digital services tax, first pitched by the Liberals in their 2021 budget, imposes a three per cent levy on revenues from tech giants earning money off Canadian content and users.
It has been deeply unpopular and widely criticized by American lawmakers, who have argued for years that the policy disproportionately impacts U.S. companies.
While Finance Minister Chrystia Freeland has pointed to similar taxes levied by other western allies when faced with criticisms of the policy, American officials have countered by asking Ottawa to wait until a global framework is in place.
Last October, the parliamentary budget officer estimated the tax will generate $7.2 billion in revenues for the federal government over five years.
Despite the plan being announced more than three years ago, the digital services tax was only recently implemented. In August, U.S. Trade Representative Katherine Tai announced that her government had requested dispute settlement consultations through the North American free trade agreement — called CUSMA — over the issue.
In a press release at the time, Tai called the digital services tax “discriminatory” toward U.S. companies.
Speaking to reporters last month, Freeland said “Canada’s position is really simple.”
“The reality is, many of our allies — the U.K., France, Italy — currently have a digital services tax in place,” Freeland said. “They are using that tax to collect revenue to make necessary investments in their own countries, investments in things like public transit.”
“We know our country needs investment,” she added. “We know it costs money, and Canada will not accept not being on a level playing field with our partners and allies. That’s our position.”
Canada, meanwhile, has been grappling with how best to address Trump’s threat of imposing 25 per cent tariffs on all imports from this country.
“I think we need to be very worried, but we also need to recognize that the way to deal with it is to focus on our interests,” said Morneau — who was Canada’s finance minister during Trump’s first term.
“And our interests are about recognizing the long-term positive relationship and trying to make sure that is forefront in our mind, and do the things that that we know are in the best interest of Canada and in the best interests of that relationship,” he also said.
Ontario trade minister agrees
In an interview from Washington, D.C. on CTV News Channel’s Power Play this week, Ontario Trade Minister Vic Fideli told Kapelos the digital services tax came up “in every single meeting” he had with “important people,” namely Republicans.
“They all feel that Canada is unilaterally making the wrong move,” Fideli said. “Our government feels the same way, by the way, and we’ve written in the past to Prime Minister Trudeau, saying the digital services tax, the DST, is not the way to go.”
When asked whether the federal government has been receptive to Ontario’s concerns, Fideli said “they haven’t changed their position yet.”
“But I’m really hoping, quite frankly, that this is set up as one of the bargaining chips that they will put on the table with the incoming Trump administration in terms of the potential tariffs, that this is something that I hope they’re prepared to give up, the border, the two per cent NATO (target),” he added. “All of these things are topics today, in addition to the DST, but we’re hoping that the Trudeau government will put some action behind those words.”
Morneau in his interview also discussed the federal government’s self-imposed fiscal anchors, and signals from Freeland that next week’s fall economic statement is unlikely to meet her pledge to keep the deficit below $40.1 billion.
The former finance minister stressed the importance of the “quality of the spending” that the federal government should lay out in that fall economic statement, and said any new line items should have the set goal of encouraging “long term positive economic outcomes.”
You can catch the full interview with former federal finance minister Bill Morneau on Question Period this Sunday at 11ET/8PT on CTV and CTV News Channel.