The Munk Debates Podcast - Munk Dialogue with Andrew Coyne: Carney opens Canada for business and courts a new European alliance

Episode Date: September 16, 2026

Andrew and Rudyard begin with several important announcements from Carney’s investment summit, including a cut to the marginal effective tax rate on new investment and the opening of Canada’s airports to private investment. The government is aggressively courting both domestic and foreign capital. There is still much more to do on tax and spending reform, and Canada needs to get serious about its deficit and debt—but these measures suggest we are moving in the right direction.In the second half of the show, Rudyard and Andrew turn to Europe and the warm reception Canada’s prime minister is receiving from EU politicians and lawmakers. European Commission President Ursula von der Leyen has even floated the idea of Canada becoming an associate member of the European Union. What would that mean, and how could closer ties with Europe strengthen Canada’s economic prospects?Andrew argues that Western democracies have a growing interest in standing together as they confront an increasingly assertive China and Russia and an America under Trump that is becoming a less predictable partner. Canada needs allies, and deeper economic and political ties with Europe could make strategic sense in this new geopolitical environment.Become a Munk Donor ($50 annually) to get 72-hour advanced access to the full length editions of Friday Focus and Munk Dialogues. Go to www.munkdebates.com to sign up. Hosted on Acast. See acast.com/privacy for more information.

This is the best single thing they have done or any government has done in recent times to improve the likelihood of higher rates of investment, higher rates of productivity growth, higher rates of GDP growth. So if I was going to borrow for anything, it would be to pay the cost of something like this. Rudyard Griffiths here, Chair of the Monk Debates with the latest installment in our Monk Dialogues with Globe Mail journalist Andrew Coyne. Hey, Andrew. to be with you. So much to catch up with you on since our last chat. We've had more turmoil out of the White House, a bond market in revolt. But I've got to start with the news the last 24 hours.

The big investor conference hosted by Prime Minister Carney. What do you take away from this event? How should Canadians be thinking about this summit, what it says about his premiership, as we barrel towards a consequential fall budget with the resumption of Parliament starting next week. Yeah, you know, we should beware of falling too much for the hype of this thing. It's useful to get people together in a room to some extent. I mean, there's no shortage of capital out there. There is perhaps a shortage of investable opportunities in Canada

because we made it so difficult to invest here. to the extent that the investors in that room can impress upon the authorities here, the necessity to make things more attracted for investment, that's probably useful. But, you know, there's no shortage of people out there looking for investments. There's no reason to think that the people promoting investments in Canada are unable to find them themselves. So I do think there was a bit of a hype around the summit itself. Now, coming out of the summit, there's been some. very useful announcements, particularly the full deductibility in the first year of expenses for a

much broader range of investments than had previously been allowed. That's major. That's a huge step. They've cut the marginal effective tax rate on new investment to something like 6.4%, which is the lowest in the G7. Every economist has looked at this as this is the kind of thing we've really needed to see. And of course, the opening of airports to investment. That's giving people assets they can invest in this country. That's helpful as well. It's helpful because I think we'll get better airport service out of as well. So the package of things altogether has, I think, an important signaling device quite beyond the policies themselves,

which is this government is very aggressively courting domestic and foreign investment. I don't think it's fair to say it's all talk. We're seeing the policies now. I mean, that deductibility, for example, applies to pipelines. I don't think you would have seen the Trudeau government have done that. So I think there's more of a sense of the government seizing the moment here. Add to that, of course, and I'm sure we're going to want to talk about this, the possibility of a tighter agreement with Europe, whatever that means.

We already have a free trade agreement, which is. is effectively in place but still requires formal ratification by 10 countries in Europe. But whatever it is, we're going to find out what they're exactly talking about. I think it's way short of membership in the EU, which is impossible. Nobody wants. But it may be something quite significant in terms of defense and that kind of thing. So, you know, this is the walking the walk after the talk. the talk of Davos, the Davos speech. And it's a pretty significant week in the life of the country.

Yeah. Yeah, a few things, you know, just for the sake of some friendly debate. We've got, you're right, this rapid write-off for basically, hopefully, investments in productivity. It makes us more competitive vis-à-vis the United States. Donald Trump enacting a very aggressive, depreciation regime on capital investments last year with the trade war on it helps certainly to understand that we got to we're competing primarily with the United States for a lot of capital but Andrew twin I think it's 35 billion dollars over five years to pay for this it wasn't in last year's budget it's not in the fiscal plan I guess it'll be in this year's budget because it has it

been announced. It's a significant amount of money, Andrew. It's on top of an incredible sums that the government has pledged to defense expenditures to take us arguably in the years to come to 5% of GDP on defense. And against this backdrop, Andrew, a pledge by the government, no cuts in transfers to provinces, no cuts to the hundred billion a year we're sending to senior citizens in this in this country through one device or another? I mean, at what point, Andrew, is this all sustainable? Can all these plates be spinning at once?

The numbers are getting big. Yeah, I agree with that. You know, the government likes to put out numbers saying, well, we have the lowest debt to GDP ratio in the G7, which is kind of like tallest building in Wichita. It's not a great boast to begin with, and it relies a lot on using net GDP, where we net out the amounts that we've saved in the CPP and the QPP,

well, you can't just sell those off to pay your debts. So our debt situation is worse than the government is letting on. What I would say is it puts more of a premium on getting control of our expenses. The government likes to make the claim and the argument, and it's true up to a point. You should distinguish between consumption and investment when you're talking about what you borrow for. You borrow to buy a house, you don't borrow to pay the groceries.

And that's true up to a point. The problem with its arguments has been a lot of the stuff that it classifies as investment isn't really an investment. It's just consumption by another name. There's also a problem of even if it is valid investment, you have to be sure that it's going to actually improve the GDP of the country because the argument for allowing you to borrow for investment is that ultimately it will pay back, that you'll get a higher GDP, higher revenues,

will improve your fiscal situation in the long run, at the expense of having to take a hit in the short run. So a lot of the times that argument isn't particularly well focused. In this particular case, I actually think you can make a pretty strong case. I can't think of a single measure that is more likely to boost GDP than radically reducing the tax rate on new investment. The reason our productivity growth and our GDP growth has been so slow is because we have relatively low levels of investment,

particularly, you know, when you look at it capital per worker, we lag way behind the United States. We lag behind most of the OECD on these kinds of measures. So we need to get higher rates of an investment. This is almost guaranteed to produce it. You're not just getting a tax rate, a broader tax rate cut. You're just getting it when you actually invest the money. I think we have to pay attention to the corporate tax rate at the same time because this measure is going to improve the incentive to make the marginal investment. But we also have to one eye on getting.

giving people the incentive to locate in the country in the first place and the broader tax rate corporate tax rate is important for that but that being said this is this is the best single thing they have done or any government has done in recent times to improve the likelihood of higher rates of investment higher rates of productivity growth higher rates of GDP growth so if i was going to borrow for anything uh it it would be to to pay the cost of something like this the upfront cost of it Yeah. But the broader picture, as you say, is not encouraging. And we're going to have to see in the upcoming budget how serious, if at all, they are about trying to get to come to grips with our deficit and debt situation. They're claiming that their preferred measure of balancing the operating budget is going to happen one year ahead of time. But that measure is only good as so far. But ultimately, even if it's borrowing for investment, you still have to borrow the money. You still have to pay. interest on it. Yeah, the bond market doesn't make a different distinction between boring for investment

or boring for consumption. And I guess it's great Andrew, it's great Andrew. It's great Andrew to take, you know, $35 billion and spend it on, agreed, you know, a bet on increasing Canada's abysmal productivity. But, you know, give me $100 billion. Let's get rid of all taxes. I don't know. I mean, these numbers start to become magical.

So you're going to be spending. what, Andrew, by 2030, upwards of 40 billion a year on defense. You're spending a hundred million on some combination of OAS and GIS, not a great investment in productivity. So, yeah, I'm just curious as to when the runway starts to run out on Christmas. And when Santa Claus decides maybe there there shouldn't be yet another present under the tree. Yeah. Well, if it was just a Christmas gift, I agree, but I do think you can distinguish this from other things. First of all, compare this to other things that this government and the last have done to try

to encourage productivity, where it involves, including the Investment Summit for that reason, for that matter, where it's a lot to do with, you know, particular pet projects of this government or the provincial governments. There's been a lot of, you know, you pump money into R&D or you get, a mega project, all of which is not going to make and hasn't made it, a dime's worth of difference because it's just so small compared to the, to the size of the economy, a $3 trillion economy. In this case, every one of the thousands of businesses across the country,

tens of thousands, hundreds of thousands of businesses across the country, every time they're looking at an investment, this is going to alter the calculus for them. It's going to make what we're previously on economic investments, it's going to tip some of them into the economic. category. Yeah, but that is much more important, much more. This is an easy, sensible thing to do. There's lots of easy sensible things.

And if you're not running, you know, 50 to $100 billion a year deficits, if the U.S. tenure is not at 5% of international bond markets aren't going on strike vis-a-vis, you know, fiscal incontinence from, from governments and the funding needs for an AI boom, then I would say, go fill your boots. Go cut all corporate taxes to zero. Go do whatever makes sense to put the Canadian economy on its feet. But, Andrew, isn't it the context that matters? Doesn't context matter here? I completely agree. And that's why I would like to see how they're going to fund this. What are they going to do to cut spending? There is still enormous amounts. There's still enormous amounts to be done on the tax side, of spreading the tax burden more evenly, of eliminating useless

deductions, exemptions, and preferences that just distort investment choices, where people are making choices, not in the basis of the real economic returns to different investments, but just what are the tax goodies attached to them. So there still needs to be a lot of work done to make the tax system more neutral, some of that revenue you can use to cut the corporate tax rates further. And God knows there's a lot to be done on the spending side. And again, particularly on the corporate side, we're selling out tens of billions of dollars annually on subsidies to business. So cutting that on its own would pay for this. So you're absolutely right in your broad point that we've got to find ways to pay for this.

We've got to get serious about the deficit in debt. But if we're making choices about what kinds of things to spend money on or to forego revenues on, this would be top of my list. Agreed. I just don't think we've made a single hard choice in the last 18 months. Fair point. Not a single one. Nothing's been cut.

Not a single sacred cow has been gourd. And I guess we're going to. We'll see. The budget will be an interesting test. Thank you for listening to the first half of our monk dialogue with Andrew Coyne. To get access to the full episode right now, consider becoming a monk donor. For just $50 a year, less than a dollar a week, you will get 72-hour advanced access to all of our premium podcasts, including Friday Focus with Janice Gross Stein. You also get our live streams of mainstage debates and all kinds of other great perks and privileges.

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