Reflections on Budget 2025: Economic growth alone won’t save us
We have taken some time to reflect on last week’s budget.
It is a hopeful budget, with commitments to get big things done. Canada faces real challenges, but we are a big, rich, powerful country. We are the world’s ninth largest economy, respected around the world, with deep commitments to diversity, democracy and the rule of law. Even though Canada faces enormous threats, we should be hopeful.
There are many specific initiatives in the Budget that will deliver real benefits to working Canadians at this time. Strategically, we really like the Budget’s focus on industrial strategy, some tentative steps on making more capital available to a wider diversity of Canadians and commitments to loosen the grip that our oligopolistic sectors have over our economy, which undermines our productivity and make life less affordable for Canadians.
However, we are concerned by the lack of a strategic approach to democratizing the economy and providing more working people and young people a path to wealth, ownership and economic security. While the Budget responds to the wish list that corporate Canada has articulated for several years, there are no guarantees that they will indeed step up to invest – or that those investments will produce growth that benefits working people.
We also note that no sacrifices are being asked of those who can most afford to make them, and very little is being done for the most vulnerable. The era of continental integration and globalization is over. Given the enormity of this geopolitical rupture, and the real suffering that many Canadians and communities are experiencing, more sacrifices could have been required of those of us who can afford to make them.
What we like
A sovereign industrial strategy that helps Canadians benefit from growth
At Social Capital Partners, we have argued that Canada needs more diverse forms of ownership, including public and community ownership of our key resources and assets, so that we have more sovereign control over our future and so that a wider diversity of Canadians can benefit from growth. The government is taking some steps in this direction.
The Budget is clear that the federal government must play a leadership role in industrial strategy and market-shaping activities. There is a recognition that we cannot simply expect capital to flow in productive ways that magically produce good results for Canada or for working people. The creation of new Crowns and agencies to break through regulatory hurdles and ordinary ineffective bureaucratic processes to get infrastructure and resource projects built, and to embed more Canadian ownership in our investments, are important.
In particular, Build Canada Homes, the Major Projects Office and the new defense procurement agency and related initiatives are all welcome. Increased military spending, led by a new defense procurement agency, and expanded partnerships away from the U.S. and towards democratic allies, are also important. Rebuilding our sovereign industrial capacity is a strategic imperative.
There is also a commitment to what appears to be a sovereign fund around critical minerals, which would be a positive step. Canadians should benefit from our own natural resources and steps to make equity investments are positive. We hope that these are first steps towards a more ambitious strategy and that the government can learn from its critical minerals strategy to quickly roll out additional sovereign funds, particularly around manufacturing, food and tech.
In sum, we are pleased to see steps towards an industrial strategy that includes the creation of sovereign funds and a focus on key national imperatives. Along with the Canada Growth Fund and the work undertaken by Canada Development Investment Corporation (CDEV), Canada may at last break free from its deep belief that “capital knows best.” The world’s most successful and resilient democratic capitalist societies understand that governments must shape markets and incent capital in ways that produce broad economic benefits for working people. We may at last be catching up.
Getting capital to the people and places where it will do the most good for Canadians
At Social Capital Partners, we have highlighted that there are many gaps in our private and public financing infrastructure. Capital is simply not getting to enough people, places, businesses and organizations in ways that will create a dynamic, diverse and resilient economy. The government has taken some positive steps.
There is an overall recognition that we need to use our public financing institutions more strategically. The expanded role and budget for the Canada Infrastructure Bank, which delivers public value at low cost, is welcome. Likewise, the commitment to the Business Development Bank of Canada (BDC) to launch a new Venture and Growth fund could be useful, but will require a clearer commitment to concessionary capital – that is, lending at more favourable terms than market rates in order to support other policy goals.
These efforts complement clear commitments around getting more capital to those who have faced barriers to accessing capital in the past. In particular, a variety of commitments to Black and Indigenous businesses, entrepreneurs and communities will deliver returns in terms of growth and inclusion. BDC’s recently announced search fund to finance women to purchase existing businesses is welcome and innovative. The Buy Canada strategy is welcome if it is focused on getting more capital to Canadian-owned businesses, including small and medium enterprises.
In sum, it is good that the government is exploring how it can use its balance sheet to get lower-cost capital to more people in ways that benefit more communities. But overall, these are tentative and underwhelming steps and we hope that, as the government gets more comfortable with concessionary financing, it will use its powers more urgently and ambitiously.
Introducing more competition to help entrepreneurs and consumers
At Social Capital Partners, we have long argued that Canada needs more competition, which should produce more innovation, productivity and growth. More competition will also create more pathways for Canadian entrepreneurs to enter and disrupt markets, and bring down prices for Canadians.
The Budget takes tangible steps towards open banking and confronting the oligopolistic banking sector. The Budget commits to legislative changes that will make it easier for federal credit unions to scale and for provincial credit unions to grow. There are commitments to review bank and Interac fees (but we have heard those before). These should help Canadian consumers and businesses. The commitment to non-compete clauses in federally regulated sectors is also good for workers and a more competitive economy.
In sum, there are many references to a more robust competition agenda and some tangible steps, but there is much more that needs to be done. In particular, it would be good to empower the Competition Bureau to confront the serial acquisitions and business roll-ups going on in communities across the country that optimize for short-term profits and, in turn, make life less affordable, suppress wages and enrich the wealthiest.
Notable for their absence
Legislative and policy changes to support a sovereign Canadian business transition strategy
Trillions of dollars in baby boomers’ business assets are going to change hands in the coming years. These assets could transition to young Canadian entrepreneurs, not-for-profits, social enterprises and Employee Ownership Trusts (EOTs) through targeted programs and concessionary capital offered by BDC or another agency. This is a generational opportunity that could shape our economy and democracy for the next half century. It is one of the best things we could do to democratize the economy and prevent control of Canadian assets from drifting into the hands of American private equity funds.
New community financing infrastructure
Although there were some moves towards getting more capital into the hands of Canadian entrepreneurs, a strategy to finance smaller businesses, social enterprises, not-for-profits, co-ops, care providers and community organizations was absent. The community finance and social finance sector – and the networks of people, businesses and organizations that rely on them – have developed low-cost, scalable projects that require investment. All of the arguments used by the government in favour of catalyzing big pools of capital to invest in big projects apply equally well to mobilizing capital in favour of local, community projects. Canada needs new mechanisms and facilities to deliver concessionary capital and loan guarantees and these are essential to economic resilience, well-being and sovereignty. This gap in the Budget reflects a wider reality that the government has no strategy to support, engage or mobilize the not-for-profit sector.
Intergenerational equity
The Budget has little to say about the real concerns of younger Canadians. While there are some bits and pieces around summer jobs programs, this budget has no coherent or substantial approach to creating a more hopeful future for young Canadians. This is a reflection of a broader absence of focus on human capital and investments in education. And the housing measures are underwhelming, including the refusal to confront the asset inflation caused by wealthy investors in residential real estate. The Budget offers little other than vague hopes that jobs will be created sometime in the future due to private-sector investment. At SCP, we believe it is time to free up revenue for more investment in young people. We can find those resources easily by eliminating the age tax credit, eliminating the boost to Old Age Security (OAS) at age 75 and starting the claw-back of OAS at lower levels.
Renewal of the tax incentive on Employee Ownership Trusts
Making it easier for business owners to sell to their employees, and eliminating the financial hit they would otherwise take in doing so, is one of the most important things we can do to democratize the economy and access to wealth for many Canadian workers. The government has taken significant steps over the past two years to make the employee ownership movement a reality. The government is now threatening this progress by not making permanent its soon-to-expire tax incentive. Business transitions take time to plan and the tax uncertainty that the government is creating by sunsetting the incentive after December 2026 – before the model has even had a realistic chance to take off in Canada – will lead to more businesses being sold to American private equity or competitors. The government still has time to rectify this issue, but time is running out.
Incenting or requiring philanthropic and pension fund capital to invest more in local Canadian impact
There are some signals in the Budget that the government understands that big pools of Canadian capital should be investing more to advance community well-being and local impact. But this is mostly framed as increasing investments in infrastructure like airports, not local businesses and community infrastructure. If Canadian pools of capital continue to invest so little in domestic businesses, the government – and beneficiaries – will need to stop asking nicely.
A digital sovereignty and democratic resilience plan
Big American tech firms are undermining Canadian democracy, poisoning our information ecosystem, hurting our young people and cannibalizing Canadian businesses. The Canadian government continues to support them, patronize them and subsidize them in various ways. Meanwhile, the global authoritarian right is running a pretty standard playbook to undermine democracies around the world, including Canada. More resources and tools need to be mobilized today to protect us from these active threats. The Budget says “AI” a lot but offers few specifics on what the government will do to combat these threats to equality, democracy and our humanity.
What next?
We understand that this Budget is primarily focused on responding to corporate Canada’s long-standing complaints that the investment climate in Canada is not good and that the regulatory environment makes it too difficult to build things. We will soon see whether this Budget catalyzes the private sector to invest in Canada’s future and whether those investments produce sustained economic growth.
But we were disappointed that there was so little about how to ensure whatever growth does occur delivers widespread benefits to Canadians, workers and young people. Canada is experiencing the end of the economic and geopolitical security orders on which we have relied and in which we have thrived.
We believe we need even more ambition and creativity in our responses to this rupture. Unleashing private-sector capital investment in big projects will not be enough. We need new playbooks, deployed more aggressively, with the goal of mobilizing all of society, not just large private-sector players.
There are specific initiatives that will help working people and the most vulnerable – the National School Food Program and automatic tax filing, for example. But these do not speak to the structural elements of the economy, which increasingly see benefits from economic growth flowing upwards towards fewer interests.
The Budget talks about “sovereignty” and “control over our future,” but its prime directive is ‘growth.’ If we are to bend the curve on the current trajectory of both capitalism and democracy, we need economic growth that does not perpetuate grotesque economic inequality or make life less affordable for working Canadians.
There are tools available to the government to prevent these outcomes if they choose to use them. We hope they will soon start to deploy them in a more sustained, intentional way.
Budget 2025 did not extend the $10M capital-gains exemption for sales through EOTs
Statement from Employee Ownership Canada
Budget 2025 and the Future of Employee Ownership Trusts in Canada
We share the disappointment felt across Canada’s business and advisory community that Budget 2025 did not make the $10 million capital gains exemption for sales through Employee Ownership Trusts (EOTs) a permanent feature of Canada’s tax system. The current incentive, passed only in 2024 with an expiry set for December 2026, means that the business community has not had adequate time to act.
This decision creates uncertainty for many business owners and advisors preparing for ownership transitions that often take more than a year to complete. The exemption was designed to make it easier for business owners to sell through an EOT, keeping jobs, ownership, and prosperity rooted in local communities. Without it, some owners may delay or reconsider transition plans, slowing the broader shift toward employee ownership.
Even so, there is reason for optimism. The August 2025 legislative updates, continued cross- party support, and strong engagement from business owners, employees, and advisors all point to growing recognition of the value EOTs bring to Canada’s economy.
We remain committed to working with government and partners across the ecosystem to make the capital gains exemption permanent, ensuring employee ownership trusts remain a viable, long-term option for Canadian businesses.
Employee ownership is more than a policy. It is a pathway to shared prosperity, inclusive growth, and resilient local economies. We’ve seen how this model can preserve legacies, empower employees as co-owners, and strengthen communities. In the United Kingdom, where EOTs have been supported through permanent tax incentives, a business is sold to an EOT every day.
As we look ahead, we call on our members, partners, and champions to continue advocating, educating, and building awareness to demonstrate why expanding employee ownership is not just good for business, but essential for Canada’s economic future.
To become an EOC member or learn more about the benefits of Employee Ownership Trusts for Canada’s economy, visit www.employee-ownership.ca.
FAQs on Budget 2025 and the future of Employee Ownership Trusts (EOTs) in Canada
Frequently Asked Questions answered by Employee Ownership Canada
What did the government say about EOTs in Budget 2025?
Budget 2025 had no new news about the expiry of the EOT tax exemption. However, the Budget confirmed that it intends to move forward with the draft legislation it tabled in August which clarifies who qualifies for the tax incentive. Employee Ownership Canada was active over the summer in advocating for these clarifying amendments, and they resolve many of the concerns we heard about from the advisory community.
Did the budget change Employee Ownership Trust (EOT) rules?
No. The core EOT framework remains in effect, and business owners can continue to use this structure for succession planning.
What happens to the $10 million capital gains exemption?
The exemption is still in effect until December 31, 2026 as originally legislated. Budget 2025 did not extend the exemption or make it permanent, which means that the clock continues to run on the current timeline. Employee Ownership Canada will continue to work with government toward making this incentive permanent, so more business owners can confidently plan EOT transitions.
Can business owners still proceed with an EOT?
Yes. The EOT framework remains in place, and the August 2025 updates are improvements that make EOTs a more practical and adoptable option for succession planning. Our advocacy has already led to positive progress, and we’ll keep working to make these measures even more beneficial, by encouraging a permanent tax exemption.
Why does the capital gains exemption matter?
The exemption reduces or eliminates capital gains tax for owners who sell their business through an EOT, making EOT transitions more financially attractive and accessible. The exemption helps offset the fact that, under most EOT structures, owners provide seller financing and receive payment over several years. In this way, the exemption compensates business owners for waiting to receive their full payout.
Is there still a possibility that the exemption could be extended or become permanent?
Yes. Cross-party support, strong community momentum, proven EOT success in the UK, and alignment with economic development goals mean permanence remains very possible. EOC is continuing advocacy and education efforts and actively engaging government decision-makers to secure the exemption before it expires.
What can business owners and advisors do now?
- Accelerate EOT transition planning to meet the December 2026 expiry deadline.
- Explore phased or hybrid transitions that make use of the current EOT framework.
- Stay informed through EOC’s upcoming webinars, newsletters, and updated resources.
- Support our advocacy efforts by sharing your experiences and helping demonstrate the positive impact of employee ownership on Canada’s economy.
What will Employee Ownership Canada do next?
We’ll continue to advocate, educate, and promote employee ownership across the country and are actively working on a renewed website, regular newsletters, member programming, speaking opportunities, and webinar training. Our focus remains clear: building awareness of the economic and social benefits of employee ownership and securing the long-term policies needed for it to thrive.
Click here to read Employee Ownership Canada’s statement on the 2025 Budget.
Could increased employee ownership restore confidence in Canada’s economy? | The Hub
By Falice Chin | Republished with permission from The Hub
There was a time when WestJet was more than just a scrappy alternative to Air Canada.
Flight attendants cracked jokes over the intercom. Pilots helped tidy the cabins, saving the company time and money.
Former CEO Gregg Saretsky credited that spirit to what he called a culture that “lives and breathes employee engagement.”
At its peak, nearly nine in 10 so-called “WestJetters” owned shares through the company’s employee share purchase plan, and profit-sharing was woven into its DNA. The Calgary-based airline leaned into the idea in its ads, proudly declaring that those in teal uniforms weren’t just ordinary “employees.”
“Because they view themselves as owners of the business, they continue to be highly productive,” Saretsky said back in 2016.
Critics might argue that a lot has changed after Onex Corporation bought WestJet in 2019 and took it private.
Long gone are the in-flight dad jokes, but the company has also undergone a series of restructuring changes that speak to a deeper shift in priorities. They include outsourcing jobs, streamlining operations, and introducing policies like a new age cap for senior pilots.
Each step fits the logic of greater profitability, but union representatives argue it has come at the expense of job security and loyalty—undermining the airline’s once-proud reputation for Western hospitality.
Call it efficiency or erosion, but the pattern is hard to miss.
As companies consolidate under ever larger pools of private capital, there’s growing unease around who’s actually benefiting from corporate growth.
It’s no coincidence, then, that voices across the political spectrum are now revisiting models of employee ownership as a potential antidote to widening wealth inequality, fading community ties, and a growing distrust in capitalism itself.
Human dignity and community connection
Few have made this argument as vigorously as former Alberta premier Jason Kenney.
In recent weeks, he has called employee ownership an “elegant policy remedy” to what he describes as a crisis of confidence in the modern economy.
“We need to face up to this problem,” Kenney told The Hub.
“There is a caricature of a big, anonymous and distant pool of capital—like private equity firms and pension funds—that buys up often smaller, medium-sized businesses, many of them originally family enterprises, and then just stripping their assets, laying people off, moving jobs overseas.”
That hollowing out of local industries, he says, is the stuff that breeds cynicism and resentment.
“We have a rise of populism of both the Right and the Left,” Kenney said. “They are both responding to the totally legitimate frustration—the hollowing out of those communities. The consequences of that is very often social breakdown, family breakdown, addictions, mental health problems, etc. We’re not just talking about maximizing GDP growth—it’s about human dignity.”
Kenney sees employee ownership as one way to rebuild that sense of dignity and connection.
Good for the economy, bottom line
Policy experts like Jon Shell of Social Capital Partners and G. Kent Fellows at the University of Calgary’s School of Public Policy make a similar argument, albeit in less political terms.
They see employee ownership as sound economics.
“Employee-owned companies outperform private equity-owned companies in the U.S. by a bunch of different metrics,” Shell said. “When we look at productivity, growth, wages—all those things are better at employee-owned companies.”
Fellows has a more personal take.
“You want companies to be more productive, and what people hear is—you want me to work harder,” the economics professor said.
Worse yet, some workers’ minds go straight to layoffs.
“If your company becomes more productive, but your market isn’t increasing, that means they need less labour to do what they’re doing,” Fellows said.
“That’s not necessarily a bad thing from an economics perspective… But if something’s good for the economy and it’s not good for me, why do I care, right?”
That, he argues, is where employee ownership can realign individuals with corporate interests. By giving workers an actual stake in the company, productivity gains start to benefit workers in material ways, not just for their bosses.
Succession planning
Over the coming decade, a huge number of Canadian small and mid-sized businesses will change hands as Baby Boomer owners retire. The Canadian Federation of Independent Business pegs the total at roughly $1.5 trillion worth of assets.
That presents a once-in-a-generation opportunity to transition some of those firms into employee hands.
Many Canadians are familiar with worker co-operatives or employee share-purchase plans, where staff buy company equity directly. But a newer model, known as an Employee Ownership Trust (EOT), is quietly reshaping that idea abroad and, to a lesser extent, here at home.
Rather than employees purchasing individual shares, an EOT sets up a trust to hold the company collectively on behalf of all its workers. The original owners can sell their business to the trust at fair market value, often reducing capital gains taxes, while ensuring the company remains Canadian-controlled and employee-driven.
Employees don’t have to put up their own money. The trust pays for the business over time using company profits, and the workers earn their share through regular dividends, and/or a payout when they retire or move on.
The result is a gradual, debt-financed transfer of ownership that protects jobs, maintains company leadership, and lets employees share in the profits and governance of the enterprise—without the need for outside investors or major structural upheaval.
“It’s a succession option,” Shell said. “One of the primary reasons why politicians love these is a sovereignty argument, right? So if a Canadian company were to sell to an employee ownership trust, that company remains Canadian and owned by Canadians.”
The United Kingdom and the United States are already experimenting at scale.
In the U.K., EOTs have been in place for more than a decade, offering generous tax incentives for owners who sell their firms to their workers.
Since the model was introduced in 2014, the number of employee-owned businesses there has grown from fewer than 200 to well over 1,000, including Aardman Animations and Shaw Healthcare.
The U.S. has an even longer history.
Since the 1970s, federal legislation has supported employee stock ownership plans (ESOPs)—the American cousin of EOT. Today, more than 6,500 U.S. companies are majority employee-owned, representing more than 14 million workers. Among them is Publix Super Markets, a grocery chain with the same scale and footprint as Loblaws in Canada.
Canada, by contrast, is still in its infancy.
EOT adoption takes time
In 2024, the federal government introduced EOTs as a new way for business owners to sell their companies to employees as a group a year later, with a temporary capital gains exemption allowing sellers to avoid tax on up to $10 million in gains from such a sale.
To date, only three companies in Canada have taken the plunge under this new framework, according to Tiara Letourneau, CEO of Rewrite Capital, an advisory firm specializing in EOT transactions.
“These transactions take at least 12 months,” she said, adding that around 80 companies have approached her firm to explore the option.
Grantbook, a Toronto-based tech consultancy serving the philanthropic sector, became the first company in Canada to convert into an EOT under the new legislation.
The other two are both based in Western Canada—Brightspot Climate and Taproot Community Support Services. The latter, which is headquartered in Maple Ridge, B.C., now boasts the largest EOT in the country with 750 employees across three provinces.
“There are more in the pipeline, but the thing about these being private company transactions is you don’t see them until they cross the finish line and make the announcement,” Letourneau said.
Advocates agree the promise is there, but so are the barriers.
The legal process is relatively new, few accountants or lawyers actually know how to set one up, and the federal tax break that makes it worthwhile is set to expire in 2026.
Kenney, now a senior advisor at Bennett Jones—another firm advising on the EOT movement—calls the sunset clause “unfortunate.”
“And it’s only a capital gains tax exemption for a maximum of $10 million. So larger-scale businesses are not interested in this,” he said. “The incentive is not large enough.”
Letourneau, who also chairs Employee Ownership Canada, a trade association that predates the EOT framework and advocates for all forms of employee ownership, is now lobbying Ottawa to expand the tax break and make it permanent.
“They need to give more time for Canadian companies who want to do this,” she stressed.
Not a panacea
Even with better incentives, experts caution that employee ownership will never become the dominant model of acquisitions.
In the U.K., where employee ownership trusts enjoy zero capital gains tax, only about 10 percent of eligible businesses choose that route when their founders retire. The rest still sell to private buyers, often for speed, simplicity, or price.
“It’s generally going to be for those who are community-oriented, who have been with the company a long time, who care deeply about the community and its employees,” Shell observed.
Critics warn that the model can easily be romanticized and treated as a moral cure for the excesses of capitalism.
“There’s no getting around that we have wealth inequality as a starting point,” Fellows said. “So unless you’re contemplating a scheme where you would be giving away chunks of a company for free, which I don’t think anyone is, there’s no getting around that.”
He adds that ownership, while empowering, also ties up workers’ wealth in a single entity.
“Imagine that you’re working for one of these businesses that are employee-owned and the business goes under,” Fellows said. “So you’ve lost your job, and now you’ve also lost your savings vehicle—not great. So there are downsides.”
It may never become the most mainstream way of doing business. And any major change to our tax code or regulations demands scrutiny.
But after a period of what many call “greedflation”—when prices rose, profits swelled, but paycheques lost their power—it’s no wonder people are looking for a fairer way to share prosperity.
What’s appealing about employee ownership is its moderation.
It doesn’t ask us to blow up the system. If anything, it’s an attempt to preserve what’s best about it by keeping companies rooted in communities and in Canadian hands.
Elbows up: A practical program for Canadian sovereignty | Report
Canada can’t become a sovereign country by doing the same old things, explains a new compendium of essays co-sponsored by the CCPA, the Centre for Future Work, and several national civil society organizations.
Elbows Up: A Practical Program for Canadian Sovereignty is a response to corporate rallying cries responding to Donald Trump with a familiar playbook: deregulation, austerity, tax cuts and fossil fuel expansion.
The collection includes contributions from 20 progressive economists and policy experts, including SCP CEO Matthew Mendelsohn and others who participated in the Elbows Up Economic Summit held in September 2025 in Ottawa.
Pipelines and algorithms aren’t going to save us | The Hill Times
By Matthew Mendelsohn | This post first appeared in The Hill Times
If you came down from Mars and followed Canadian news this past year, you would think our economic well-being was contingent on natural resources, energy, and infrastructure development. And that, in the future, we will need to complement that foundation with a focus on tech, innovation, and artificial intelligence.
This strategy misses too much, and will leave Canadians more vulnerable to the Trump administration’s ongoing threats to inflict pain on Canadians and our economy.
Obviously, successfully executing on private- and public-sector investment strategies on big natural resource and infrastructure projects, and deploying AI in ways that don’t threaten democracy or exacerbate inequality, will be crucial to Canada’s long-term prosperity.
But if you walk into almost any community across the country, the economic hum isn’t coming from a mine or an AI lab. It comes from the cafés, dental offices, repair shops, health-care practitioners, educators, small manufacturers, and coaches of all kinds. Local businesses and non-profits sustain daily life and economic well-being. They are important sources of economic activity. But, thus far, the federal government’s economic priorities have not focused on these activities.
It is not surprising.
The extraction, export, and processing of natural resources have been important to Canada’s economy for hundreds of years. Our export-oriented resource sector and primary industries will remain important to our future, and powerful corporate interests have loudly expressed their dissatisfaction with federal policy on climate and development over the past decade.
And Canadian tech entrepreneurs—also influential with the federal government—are right that Canada has not been strategic about tech-led economic growth and that we’ve allowed our intellectual property to be sold off. Canada does have many advantages in AI that we should exploit in order to build great tech companies.
But these two priorities are clearly not going to be enough. Really smart investment strategies on natural resources and AI alone will not get us through this moment of geopolitical rupture.
Most Canadian jobs are not directly impacted by tariffs and most of our businesses aren’t export-oriented. Small and medium-sized enterprises (SMEs) contribute just over half of Canada’s GDP and employ 64 per cent of our people. Smaller businesses, locally owned enterprises, not-for-profits, and social enterprises employ and reinvest locally, act as important local economic infrastructure and provide services that are crucial for well-being. They are automatic stabilizers in the face of tariff threats that are outside our control.
Yes, there is a need to mobilize large pools of capital to invest more in big national projects and in new sectors. But there are also capital and investment gaps for smaller, locally owned businesses and not-for-profits.
Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OFSI), has begun to highlight some of these financing gaps. According to OSFI, Canadian banks are in a position to extend nearly $1-trillion in additional loans to SMEs while staying above their capital minimums. This financing is not reaching many small- to medium-sized enterprises that need it, in part because OSFI’s existing risk-weighting rules make those loans less attractive.
The Competition Bureau has also recently launched a consultation on the state of financing of SMEs, with a particular focus on access to loans, highlighting the growing concern that smaller businesses do not have access to affordable financing and that our existing commercial banks may be part of the problem. Social enterprises, not-for-profits, and co-ops have long highlighted that their financing needs are overlooked by mainstream institutions.
Pension funds and philanthropic foundations have also been called out for failing to invest sufficient Canadian capital into local communities. With trillions of dollars of assets under management, the Department of Finance suggests that even a small reallocation towards domestic investment would produce enormous net-new economic activity in Canadian communities, with little new risk.
And perhaps, most importantly, regardless of what the banks and pension funds do, the federal government needs to step up to support community and social finance infrastructure.
Canada’s social finance leaders have already highlighted the kinds of activities that could be funded. They include recapitalizing the Social Finance Fund, creating loan guarantee facilities for local enterprises and not-for-profits, and making it easier for employees, new entrepreneurs, and communities to purchase businesses from retiring owners and keep them local.
These choices do not require the federal government to spend new funds. They require policy change and, in some instances, more creative uses of the federal balance sheet to finance local economic activities.
The federal government is undertaking some steps to align with this vision: the $10-billion in loan guarantees to Indigenous communities to enable equity in natural resource and other major projects, and the partnership between First Nations Bank and the Business Development Bank of Canada to facilitate the acquisition of existing businesses by Indigenous communities are two recent examples. But the federal government must do more to make low-cost capital available.
As the federal government focuses on big, new projects and sectors that are attracting huge pools of global investment, we have to also address the financing needs of local businesses and not-for-profits. We can build a more resilient economy by also investing in the sectors that dominate people’s daily lives.
What's wrong with mainstream economics?
By Guillaume Vallet and SCP Fellow Louis-Philippe Rochon
In science, when an idea or theory is proven wrong, it is rejected by the profession at large and cast aside in favour of the new idea, which then establishes itself and gains prominence.
Before that happens, tests are done to ensure its validity. Science is self-correcting, which challenges scientists to rethink assumptions, develop new experiments and construct more accurate models. When a theory is proven wrong, it’s not a failure as much as a sign of progress in understanding the world and the environment in which we live.
History is full of examples of evolving ideas. For instance, upon proving that it is the earth that rotates around the sun, the geocentric theory of the universe was abandoned in favour of the heliocentric model.
But, for some reason, this scientific methodology does not seem to apply to economics.
Indeed, the mainstream view – or what we call neoclassical economics – still stands today, despite some or all of it having been shown to be empirically wrong on countless occasions.
The persistence of traditional economic thinking can be attributed to a combination of institutional inertia, ideological alignment, financial incentives and methodological appeal. Neoclassical economics has long been the foundation of most university economics programs, textbooks and professional journals, and graduates of these programs find well-paying jobs in consulting and investment banking.
The old paradigm
Generations of economists have been trained within this paradigm, which assumes that consumers make rational decisions, that businesses aim to maximize profits, that people act independently based on all the relevant information and that markets will self-regulate in response to supply and demand. Departments, funding structures and professional incentives such as university promotion and academic tenure reward adherence to these established ideas and models, making it risky for scholars to challenge the orthodoxy.
Neoclassical economics also aligns well with some dominant political, ideological and financial interests—especially those favouring free markets and limited government intervention. Traditional, “mainstream” economics often calls for policies like deregulation, tax cuts and privatization, which are attractive to powerful economic actors, which has helped maintain its influence in policy-making circles.
There have been many empirical studies that undermine or invalidate key arguments of this old paradigm.
Yet, the economics profession at large has simply ignored these studies and carried on as if nothing happened.
One of the most helpful examples to look at is the 2008 financial crisis.
Between 2008 and 2011, professional economics conferences were dominated by papers analyzing what had happened. Then, after that, the topic fell off the table, and my colleagues carried on as if nothing had happened. Indeed, they refused to blame their flawed economic theory – let alone policies they had recommended – for the crisis.
Many of us who are critical of mainstream economics saw something different. We argued that the crisis wasn’t just a “bad shock,” but the result of how the financial system was designed. Starting in the 1980s, banks and investment firms were deregulated, letting them invent risky products, like mortgage-backed securities, and chase profits through speculation rather than productive investment. Some of us saw this downturn as predictable.
But, then-governor of the Federal Reserve Bank, Ben Bernanke pronounced that “although economists have much to learn from this crisis… calls for a radical reworking of the field go too far.” Such statements prompted many to ask whether economics is even a science. However, because too many interests were tied to the status quo, most seemed to conclude that “the theory is fine.”
But the theory is not fine: prevailing economic theory does not represent the world in which we live. And bad economic theory leads to bad economic policies. As economist John Maynard Keynes said, if we rely blindly on traditional economic theory, it can be “misleading and dangerous.” This is truer today.
Assumptions that simplify the complexity of human behaviour into predictable patterns do make it possible to model economic activity mathematically. But, as Nobel Laureate Paul Krugman said, neoclassical economists “mistook beauty, clad in impressive-looking mathematics, for truth.”
While traditional economic assumptions allow for elegant models and clear predictions, they overlook the sometimes irrational, messy, real-world complexities in which we live.
It is important to expose some of the most important myths in economics, as this carries important consequences for economic policy and, of course, economic growth.
Myth 1: Inflation is the result of excess demand and, as such, is often the result of government deficits or overspending.
In reality, inflation is determined by the costs of production and has very little to do with excess demand. As the post-pandemic surge in inflation has shown, the price of oil and other commodities, costs of transporting goods and bottlenecks all contribute to rising inflation.
Myth 2: Central banks are uniquely positioned to fight inflation, and higher interest rates are needed to fight inflation.
This myth stems from the first idea. But if inflation is not caused by demand, policies designed to deflate the economy and hence demand are ineffective in fighting inflation. Higher interest rates may not be the best solution and may actually cause more harm.
Myth 3: Growth is good for everyone, as it raises all ships.
This applies both domestically and globally. Indeed, if there is one thing we realized from globalization it’s that it actually benefited the very few, while the rest suffered.
Myth 4: Central banks need to be independent in order to fight inflation.
First, as stated above, inflation is cost-related and, hence, monetary policy does little to affect it. Second, central banks work very closely with governments and banks to ensure financial stability. The Bank of Canada works closely with federal and provincial financial authorities, the Office of the Superintendent of Financial Institutions (OSFI) and the Canada Deposit and Insurance Corporation (CDIC). They may be independent of political pressure to change interest rates, but they are sensitive to the needs of banks and financial interests.
Myth 5: Income inequality is determined by markets.
In reality, inequality is not inherent, but a product of power dynamics in capitalist systems. Markets are governed by a few powerful firms, and this concentration allows firms to charge higher prices and increase their profits, thereby lowering the share of wages in the economy. Those making decisions can choose to inflate executive compensation and returns to shareholders rather than labour. Inequality is a choice and not a market-determined one.
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The economy is going through unbelievable structural transformations, and the nature of capitalism is being remade. Clinging to disproven theories because it is convenient will result in economists who cannot help explain what is going on, nor advise what to do about it.
Better economic theory recognizes things like income inequality and discrimination are some of the biggest economic and political problems today, and that conventional economics is too heavily influenced by those who own and control wealth and power.
Our misfortune, to paraphrase John Kenneth Galbraith, is that these mainstream economic theories and policies have been tried and failed miserably. Yet, we always insist on repeating our failed experiments. If that is not irrational behaviour, we don’t know what is.
Building a thriving economy: CSA Policy Pathways Conference
The CSA Policy Pathways Conference: Building a Thriving Canadian Economy
Panel discussion: Centering equity in economic policy
Wednesday, Nov. 5, 2025
11:30 am – 12:30 pm
The Quay – Toronto Region Board of Trade
100 Queens Quay East
Toronto, Ontario
Panelists
Béatrice Alain
Executive Director, Chantier de l’économie sociale
Narinder Dahmi
President, The Sonor Foundation and Co-founder, New Power Labs
Jennifer Robson
Associate Professor, Director of the Graduate Program in Political Management at Carleton University
Moderator
Matthew Mendelsohn
CEO, Social Capital Partners
Creativity could be collateral damage of U.S. film tariff
By SCP Fellow Biju Pappachan | This post first appeared in Playback
When I read that the U.S. plans to impose a 100% tariff on foreign-made films, I didn’t think about Hollywood first. I thought about the crews, editors and emerging filmmakers here in Toronto. The people who make a living behind the camera and the underrepresented young creative workers we train every day at POV — a workforce development charity dedicated to training diverse talent.
This latest announcement from President Trump’s administration is a reminder that the cultural industries, including film, television, gaming and advertising, are not immune to politics. They are part of global trade. And when cultural trade becomes a weapon, creativity becomes collateral damage.
Canada’s screen economy is a jobs engine, contributing approximately 239,000 jobs and $14.05 billion to our GDP annually. Undermine that, and you undercut one of our most globally competitive sectors.
For decades, Canada has been one of the world’s busiest production hubs. Our country welcomes major U.S. shoots and hosts world-class crews. Every year, young Canadians, many from underrepresented communities, step onto a set for the first time, see their names in credits and start to build film and television careers.
A 100% film tariff could undo all the investments and efforts that have built this momentum, and here’s why. Canadian productions often rely on U.S. partnerships for financing, equipment and distribution. Tariffs that double the cost of foreign content entering the U.S. would make those deals much harder to secure. Coproductions would stall and costs for imported gear and set materials would get higher. Independent films would never cross the border.
Due to this uncertainty, productions would inevitably slow and the first people to lose work would be the crew, trainees and new graduates — the very creatives POV strives to help break into the industry.
Even in the U.S., critics are calling the proposed move misguided. Actor George Clooney said it best, that if “[Trump] wants to fix [the industry], then he should talk about a federal incentive.”
Short-term implications
The threat alone could have dire consequences and has already started to stress the Canadian creative industries, injecting uncertainty into planning, financing and production and shaking investor confidence.
For the average Canadian, the effects of film tariffs might feel abstract. But for the young creative workers we train at POV, tariffs are a very real threat. If production slows, it’s these new creative workers who will lose out on internships, apprenticeships and the first jobs that turn their training into careers.
At a recent in-person gathering at POV, where new creatives and independent filmmakers swap stories, the anxiety was clear. As one filmmaker put it, “tariffs could leave small productions stranded and crews without work … budgets are already thin and the extra costs risk making projects unviable.”
In the abstract, it might feel like film tariffs would squeeze corporations, but the reality is that they would squeeze ground-level crews and filmmakers across the industry. Not only do our screen industries generate export revenue and create domestic jobs, they showcase Canadian stories on the global stage. Weakening this sector would undermine both our economic and our cultural sovereignty.
Next steps
Canada’s politicians, policymakers and funders at all levels need to double down on support for this multibillion-dollar industry.
At the federal level, Ottawa should move quickly to secure tariff exemptions for essential screen industry goods such as gear, equipment and set construction. We need to oppose U.S. film tariffs that would tax imported films, TV shows or digital media as “intangible” content. Our trade diplomats should be in Washington now, making the case that tariffs would damage both sides of the border.
The U.S. film and television industry relies heavily on Canadian production services; everything from Toronto sound stages and visual-effects houses to post-production teams in Montreal and Vancouver. In 2023-24, 86% of all foreign film and TV projects shot in Canada originated from the U.S., supporting thousands of American-backed jobs here and reducing costs for those companies. Disrupting that network would raise expenses for U.S. producers and slow their release schedules, hurting American just as much as it would hurt Canadian crews.
At the provincial level, we can protect our global competitiveness by adjusting tax credits to neutralize tariff-induced production costs, fund training and subsidize paid job placements that sustain the entire screen production ecosystem, including grips, lighting and post- production, so entry-level and diverse talent aren’t casualties.
And at the municipal level, cities like Toronto need to keep doing what they do best: removing barriers, streamlining permits and supporting local suppliers.
Time to stand up
Some argue that U.S. tariffs could push Canada to rely more on its own domestic productions, and there’s some truth to that. A moment like this could inspire new investment in Canadian stories and storytellers, giving local producers a chance to fill the gap if U.S. work slows. But the domestic market alone can’t sustain the full scale of Canada’s creative workforce. Our industry is built on collaboration, coproductions and international distribution. What we make here often finds its audience abroad, especially in the U.S., our largest trading and cultural partner.
That’s why tariffs could be so dangerous. They don’t just threaten investments and budgets; they threaten the reach of our stories. The creative economy is one of Canada’s greatest exports because it carries our values, diversity and identity to the world. Tariffs on films aren’t just about money — they are about who gets to tell their story and whether that story is allowed to cross borders.
When tariffs threaten to strike creativity and culture, we can’t afford to stay quiet. This is the moment for Canada to stand up for its filmmakers, crews and cultural sovereignty. Film and television are not luxuries; cultural production is a strategic sector that delivers exports, jobs and soft power. Just as we negotiate for agricultural or industrial tariff exemptions, cultural production deserves equal protection.
By investing in our film and television industry, safeguarding cross-border partnerships and making sure young, diverse talent continues to find opportunity here at home, we can protect and strengthen the voices of the next generation of Canadian storytellers.
Biju Pappachan is executive director of the charity POV, where he leverages his extensive experience in driving systemic change to advance the organization’s mission of promoting economic inclusion. He has developed and launched innovative workforce development strategies that support BIPOC and diverse young creatives. He is currently a research fellow at policy non-profit Social Capital Partners.
Hype or help? Can crypto and stablecoins solve economic inequality?
By SCP Fellow Dan Rohde
Cryptocurrencies, like Bitcoin, are caught between two worlds. On the one hand, they fancy themselves “currencies” – promising to be an effective means of payment. On the other hand, cryptocurrencies act as speculative assets – things purchased today with the hope that they will increase in value down the line.
The problem is that these two functions often conflict with one another. And while crypto assets have proven effective speculative assets (indeed, they’ve made some speculators quite a lot of money!), they’ve proven quite bad as a means of payment. Exchanges, and stablecoins, are the primary means by which crypto advocates are attempting to bridge this gap – to move from the world of speculation to a functional means of payment. Sadly, the result leaves much to be desired, and, in my opinion, adds rather little to our existing payment infrastructure.
This hasn’t stopped advocates, like Mike Moffat, from promoting the use of stablecoins as a common currency. His argument is that this new currency could help the cost-of-living crisis and promote economic equality – particularly for young people. I am not convinced that crypto can help address economic inequality. Before we get into that, let’s break down what stablecoins are and aren’t, and how to think critically about their promises.
To be effective, a currency should have at least two things. First, it should be an easy mode of payment. If it’s a pain to use something to buy and sell things, you’ll typically use something else. (For example, the easier debit and credit cards have become to use, the more they displaced cash as a mode of payment.)
Second, it should have a relatively stable nominal value. It’s vitally important to know, when you go purchase a coffee, that the toonie in your pocket will actually buy you that $2 coffee without haggling or negotiation. In other words, the number on your money should generally be what it’s worth in purchases. The more variation you have, the harder it is to use your money as a means of payment.
Cryptocurrencies are generally very bad at both of these: here’s how. Bitcoin, just to take a well-known example, distinguishes itself by saying that it’s a fully anonymous means of peer-to-peer payment that does not require financial intermediaries, like banks or credit card companies. It casts itself as “digital cash” that you can exchange directly with your peers. To accomplish this, it uses elliptic-curve cryptography to anonymously process payments between digital wallets – a process that requires so-called “miners” to expend considerable energy and computing power to validate each transfer. While estimates vary, one study suggested a single bitcoin transfer can require between 100 and 1000 kWh, compared to .001kWh for a credit card purchase. (This means that a single bitcoin purchase can take around 500,000x more energy than a credit card purchase!)
The time involved in processing a crypto payment is also substantial: Bitcoin payments can get confirmed in about 10 minutes, but typically take 1-1.5 hours to complete. Imagine waiting 10 minutes to confirm payment of your coffee. For this reason, bitcoin transactions very often occur over a crypto-exchange. (Imagine a stock exchange, but for crypto assets.) This greatly simplifies the process of moving assets between holders, but it also does away entirely with that idea of bitcoin being anonymous and independent of financial intermediaries.
Cryptocurrencies are also notoriously bad at holding a stable nominal value. Like all speculative assets, their value rises and falls continuously based on available prices on the market. At any given moment, you don’t know exactly how many $2 coffees your bitcoin will buy you. At the time I am writing this, one Bitcoin, or “Btc,” is valued at about $114,000; exactly 4 hours ago, it was just over $112,000; six months ago, it was $75,000. This kind of variability is fine when you’re playing the markets, but it’s terrible for making everyday payments.
Stablecoins were developed to overcome these problems. A stablecoin is a type of crypto asset that, unlike Btc, isn’t anonymous, peer-to-peer or even necessarily protected with any sort of cryptography. Rather, a stablecoin is issued by a private company, and pegged to a regular fiat currency (like the U.S. dollar, or USD). What does it mean that the coin is “pegged” to a regular fiat money? All it means is that the issuer promises their coins can be redeemed at any time for their face value in regular money. So, one USD-pegged coin can be redeemed for $1 in your bank account. Stablecoin issuers maintain this peg by holding a set of liquid financial assets that they can sell off at any time to ensure they have enough money to pay out redemptions. Placing stablecoins on an exchange where they can be easily swapped with crypto assets like bitcoin aids in converting crypto-assets into regular money and helps anchor their nominal value.
If this stablecoin setup sounds vaguely familiar to you, that’s because it is: it’s exactly how your bank works! Your bank issues credits denominated in Canadian dollars, or CAD. They don’t call those credits “coins,” but that doesn’t matter very much. Your bank ensures that the credits they offer (which we call “deposit accounts”) stay pegged to CAD by holding a large, diversified set of liquid financial assets, by subscribing for deposit insurance under the Canadian Deposit Insurance Corporation, or CDIC, and playing a part in Canada’s financial safety net.
However, there is one big difference between your bank and a stablecoin issuer: your bank is tightly regulated under the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC) and can turn to the Bank of Canada in a crisis. In contrast, your local stablecoin issuer is likely trying its best to avoid any and all such regulation as far as it is able. You can hope they are being honest about their assets, but all you really have is hope.
Like many pieces about crypto and stablecoins recently, Moffat’s blog points to many, very real problems with our current financial system. He points out how expensive credit card transactions are for small businesses, and how difficult it can be to transfer money abroad. (Here, for example, is an excellent recent article about credit-card fees.) These are very real problems, ones that particularly affect small business, and that call for real solutions. He also points to a very genuine and important ambiguity as to how stablecoins should be regulated – either under the Federal Government’s power to regulate ‘banks’ or under the provincial power to regulate ‘securities.’
The big question, however, is what crypto actually does to solve these problems.
Moffat says that stablecoins can be programmed/designed to provide cheaper payments and higher rates of interest for young and middle-income savers. He doesn’t specify anywhere exactly how or why they don’t already do this. What type of “programming” is going to make lending to younger or lower-income individuals profitable for stablecoin issuers or crypto lenders when it isn’t for banks? How is it that stablecoin issuers, which adopt much of the model of regulated banks, could offer more “frictionless” payments than the existing payment system? How exactly are stablecoins, which are tied to notoriously volatile crypto markets, going to help younger individuals save safely for a home?
Advocates often wax lyrical on crypto’s potential to usher in economic equality, and they often build their case on very real problems with our financial and payments system. But we should not so easily buy into their myths. While I’m not making any claims about Moffat in particular, advocates are very often (though not always) out to hype their product rather than advocating for real solutions to these problems. We should always ask whether what they are offering actually adds anything of value to be considered.
There are no doubt real problems with our current banking system that contribute to economic exclusion and inequality. As Moffat points out, fees for international remittances are large. Too many Canadians are “underbanked,” denying them access to vital payments and lending infrastructure. Rather than turning to crypto, which was founded on libertarian anti-government ideology, there are other potential solutions to these problems.
Canada could directly regulate credit card fees or international remittances to help consumers, small businesses and people sending money to family abroad. Open banking also provides an avenue to rethink public access to credit. Lastly, but perhaps most importantly, we could (and should) consider developing a public digital currency, such as a Central Bank Digital Currency (CBDC). Why shouldn’t the state, which already provides cash free of charge, provide a public, digital money? A type of debit card that small businesses can accept without paying fees to banks. Wouldn’t that address many of the main issues with our current system without turning to digital libertarians?
At best, stablecoins mimic what our banks already do, only with less transparency and oversight. If we want a payment system that is cheaper, fairer and more inclusive, we should look through the hype to real policy innovations to deliver genuine improvements for Canadian households and businesses.