‘Mini-win’ for Canada as digital services tax dropped, expert says

Former special advisor to the Ministry of Finance Julian Karaguesian on if dropping the digital service tax gives Canada additional leverage during trade talks.

Days after Ottawa rescinded the digital services tax aimed at tech companies to advance trade negotiations with the U.S., critics have voiced their disappointment in the government’s handling of the situation.

But one expert calls this move by Prime Minister Mark Carney a “mini-win.”

The play made by the federal government to hold on to the tax until the last minute before giving in made it appear as though a concession had been made, Julian Karaguesian, an economist and former special adviser at the Ministry of Finance, told CTV News Channel on Tuesday.

“We also had to back down publicly and double down on this tax,” Karaguesian said. “But I think that was a good strategic, tactical manoeuvre by the prime minister.”

The feds dropped the tax hours before the first payment was due, three days after U.S. President Donald Trump suspended trade talks over it.

Carney called it “part of a bigger negotiation.”

‘No sovereignty over domestic policy’

According to Karaguesian, Canada is facing significant pressures and challenges on federal and provincial budgets, in addition to the pressure of boosting defence spending to 5 per cent of GDP in the coming decade.

“There’s a sovereignty issue. The digital services tax is a domestic policy,” Karaguesian points out.

“What we’re seeing from the White House is they’re telling their allies that ‘you have no sovereignty over your domestic policy. We will use leverage in terms of access to our market to cancel any policy that we believe interferes with our business interests.’”

‘Truly internal economy’

Meanwhile, the removal of provincial trade barriers is largely symbolic when it comes to direct barriers, Karaguesian explains.

If all provinces and territories eliminated the most egregious interprovincial trade barriers, the federal government could promote policies to boost Canada’s economy and productivity, creating what Karaguesian calls a “truly internal economy.”

However, despite progress on removing these trade barriers, there is a certain risk associated with different jurisdictions taking different approaches, a recent report by the Canadian Federation of Independent Business said.

‘A natural resource superpower’

Karaguesian says Canada needs to reduce its trade dependence on the U.S. and consider expanding trade with countries like India, China, and Europe.

He highlights the importance of focusing on Canada’s infrastructure — especially transportation and telecommunications.

“We are a natural resource superpower,” Karaguesian said.

“We were a rich country before we had total free trade with the U.S., and we will stay a rich country if we make good choices. We just have to reduce our dependence on a single trading partner, which is (not) treating us as a partner and an ally but rather using our economic interdependence as a weapon to squeeze concessions out of us.”

The 30-day trade deal deadline announced after Carney and Trump met in Alberta during the G7 summit will come to an end on July 21.

Canada is expected to adjust counter-tariffs on steel and aluminium products to “consistent” levels in conjunction with the trade talks held with the U.S., Carney said two weeks ago.

With files from CTV News’ Luca Caruso-Moro and the Canadian Press