As Ottawa Woos Business With New Reforms, Observers Question the State’s Continued Hand in the Economy

News Analysis

Announcements by the federal government at the recent Canada Investment Summit in Toronto were the latest in a series of measures aimed at drawing more investment into Canada and boosting the economy, including a major tax overhaul and earlier initiatives to fast-track certain major projects.

The measures have been welcomed by many in the business community as a reversal of Trudeau-era restrictions, but several observers are pointing out that the government is maintaining a heavy presence in the economy, leading to questions of whether the government could tip the scales or run the risk of changing those policies at any time.

“You’re changing and potentially altering the role of the government to be picking winners and losers,” David Leis, president of the Winnipeg-based think tank Frontier Centre for Public Policy, said in an interview.

However, the projects considered for fast approval are subject to selection by the government, while Ottawa is maintaining legislation such as the Impact Assessment Act and selectively relaxing the rules.

The Carney government has also rolled back or relaxed several other Trudeau-era regulations, including temporarily pausing implementation of the planned oil and gas emissions cap and suspending clean electricity regulations in Alberta as a new arrangement is developed.

Ottawa has also begun working towards equivalency agreements with Alberta regarding industrial carbon pricing and methane, while a Nov. 27, 2025, memorandum of understanding between Ottawa and Alberta put forth a broader agreement that included proposing a new crude oil pipeline to the B.C. coast.

The agreement was followed by a May 15, 2026, implementation agreement and a July 2 trilateral memorandum of understanding between Alberta, Ottawa, and the Oil Sands Alliance pertaining to the proposed West Coast pipeline and the Pathways carbon capture project, a requirement to allow the potential oil pipeline at a cost of billions of dollars.

While Alberta Premier Danielle Smith has welcomed the rollback and relaxation of some of what she referred to as the “nine bad laws,” Leis noted that many of the changes could potentially be reversed or reapplied in the future, particularly if economic conditions improve.

A 2024 Fraser Institute study estimated total subsidies across federal, provincial, and municipal governments at $52 billion in 2022, including $11.2 billion federally.

The study noted that federal business subsidies went up by approximately 140 percent between the 2014/2015 and 2023/2024 fiscal years.

University of Calgary economics professor Jack Mintz said selecting certain industries to receive incentives can distort the market.

“If we give breaks to one industry, but it’s really a declining industry, well, other industries end up paying more, and they’re the ones that are important for your competitiveness,” he said.

Mintz added that areas like national defence and basic public infrastructure are exceptions, but said commercial sectors should be allowed to compete on an even playing field, without the government tipping the scales.

The tax policy allows a wider range of businesses to write off a much higher value of capital investment instead of deducting it over time, with Ottawa saying it cuts the marginal effective tax rate on new business investment from 13 percent to 6.4 percent, the lowest among G7 countries. The government also said the summit resulted in nearly $500 billion in new investment commitments.

Postwar Canada saw a further expansion of the welfare state, with government assuming an even bigger role in healthcare, income security, and economic management, following a similar trends as in the United States. But south of the border, leading up to the 1970s and 1980s, ongoing inflation, weak growth, and other factors led to a more neoliberal economic approach that put more focus on deregulation, lower marginal tax rates, privatization, and free markets.

However, the market-oriented shift saw continued government subsidization of select corporations and industries, including preferential tax treatment, loan guarantees, and trade protections, which were also followed in Canada.

The government says Canada is on track to balance the operating budget next year, one year ahead of schedule, and that it is reducing the size of the civil service by 10 percent and cutting spending on consultants by 20 percent, while reducing annual growth in operating spending from more than 8 percent in the previous decade to less than 2 percent.

The government says the distinction between operating and capital spending allows it to preserve social programs while directing fiscal capacity toward expenditures intended to boost economic growth. Ottawa says its investment strategy is intended to attract private capital, increase productivity, expand Canada’s productive capacity, and strengthen the economy over the long term.

Moody says this could still lead to deficits that taxpayers need to bear.

“All you need to do is define capital in such a broad fashion so that you can move items from the operating column into the capital column,” he said.

“The bottom line is what’s the overall deficit,” Moody added. “The taxpayers will bear that cost, and eventually it’s got to be repaid, which means that taxes go up or less services.”

He rejected Ottawa’s claims that the government’s capital investments will pay for themselves through increased productivity and investment, referring to a Sept. 10 analysis by the Parliamentary Budget Officer concluding that industrial development programs produce the lowest estimated returns for the economy, with higher returns for infrastructure and private research.

“Government is one of the worst investors of assets ever,” Moody said. “They’re not the market. They can influence the market, but they’re not the market.”

Mintz similarly questioned the government’s statements that its expenditures and subsidization are “de-risking” projects, saying this puts the risk on the tax-payer.

“It’s not de-risking for the government or society. It’s de-risking for private investor that the government is doing right by backstopping the project.”