If politics is like poker, Canada got caught bluffing, with nothing to show for its bold and according to one expert, impetuous, implementation of the digital services tax.
Michael Geist, a law professor and the Canada Research Chair in Internet and E-Commerce Law at the University of Ottawa, told CityNews on Monday that Prime Minister Mark Carney’s government made a tactical error by rushing to implement the tax, which has since been cancelled after U.S. President Donald Trump halted all trade talks with Canada over the issue.
Those talks are now back on, but, according to Geist, Canada didn’t gain any ground. He said Canada should have put the tax against U.S. tech giants on the back burner so it could have been used as a negotiating tool.
“The timing of this is simply not great,” Geist said.
“You know, had they provided a bit of a deferral … for, say, 30 days … that would have offered up an opportunity for this to be one of the cards you could play in the negotiations.”
He noted the federal parliamentary budget officer projected the tax would have brought in around $7.2 billion in revenue over five years.
“We’re giving up billions in return … we should be getting something as part of the tariff discussions. What the Canadian government seems to have gotten is a return back to the status quo that existed just a week ago.”
“All they’ve been able to (do) is to get the United States back to the bargaining table. Well, they were at the bargaining table before the government decided, over many warnings, to go ahead and say, ‘we’re going to start collecting this right away,’ and not defer this at least for a month, to open the door to some sort of broader-based agreement.”
Had the tax actually gone into effect, Geist said Canadian consumers would have ended up paying more in the end as tech giants like Amazon, Meta, Airbnb, Uber and Google looked to recoup the losses.
“In fact, Google, which was certainly one of the companies that would be targeted by this, began charging a specific fee to Canadian advertisers, and those advertising in Canada, just last year in anticipation of the new tax. So, it’s clear many of the charges were ultimately going to be borne by Canadian business, and arguably, at the end of the day, by Canadian consumers.”
Geist also said he believes Canada made a mistake by bailing from the Organization for Economic Co-operation and Development’s plan to set up a multilateral tax approach designed to replace digital service taxes imposed by individual countries.
“Countries had said they would not, while they were doing these discussions, introduce new measures, and the Canadian government stood virtually alone in saying, ‘No, they didn’t want to see one of these moratoriums,’” he said.
” I think at the end of the day, the government saw the potential revenues and were willing to sacrifice some of the principles around sort of multinational agreements in order to try to get them, and they knew that there was going to be opposition from the United States.
“I think … they thought they could either talk their way through or they could massage the issue with the US. But if we’ve learned anything from especially Donald Trump right now, that approach just doesn’t work.”
Canada needs ‘reset’ on tech policy
While Geist said he believes the tech industry needs to be regulated, he thinks Canada needs to re-think its approach.
“I think we need a real reset, and I think a lot more realism when it comes to some of our tech policy. And that’s not to say that tech companies shouldn’t be regulated. They absolutely should, but taking an approach where you stand at the top of the mountain and say, ‘This is what we’re going to do, and we’re not interested in hearing what you have to say,’ and … we’re going to call your bluff. They’re not bluffing.
“Canada, the Canadian market, just isn’t important enough, and the costs of some of these regulatory proposals are so high that they are going to invite a response. You simply can’t expect companies to face potentially billions in additional costs and not have some kind of response.
“The Canadian government, for too long, has almost looked at these tech companies like an ATM where they just want to do withdrawals to help fund their policies,” he concludes. “We’ve got to do a better job of coming up with realistic and effective tech policy.”
Former ambassador weighs in on digital services tax, environment of trade talks
Amid news that trade talks resumed, CityNews spoke with Frank McKenna — the former Canadian ambassador to the United States and the current deputy chair of TD Bank Group — about the decision to scrap the tax.
“This is actually fairly typical in negotiating with President Trump. He’s very unpredictable. Some might think it’s a negotiating tactic. I think it’s a character flaw, but regardless it’s unpredictable and you have to be prepared to move with (the) music,” he said.
“I think the Government of Canada came to the conclusion that a trillion-dollar trade deal, which would be beneficial to Canadian workers and industry, was so important it shouldn’t be derailed by a [two]-billion-dollar item, which was probably going to get flushed down the toilet during the negotiations anyway.”
McKenna, who also previously served as a Liberal premier of New Brunswick, said the current environment in Washington is vastly different from when he was ambassador during former U.S. President George W. Bush’s second term. He specifically recalled the decision not to join the war in Iraq and a bitter dispute over softwood lumber.
“President Bush, or even for that matter, President Clinton, were extremely respectful. And President Bush would tell me about Iraq. He said, ‘Look, I understand your country has different views and different political imperatives, and I respect that.
“That’s not what we’re getting now. If anything, I would say the country of the United States as a whole is quite respectful, but at the level of the president, his language tends to be very inflammatory.”
McKenna said while the digital services tax was an attempt globally to get some fairness from tech giants and several other countries still have the tax, “it had flaws in it” and acknowledged it was an irritant south of the border.
“It’s been a policy that does not have much love anywhere, certainly from the United States technology giants, but also within Canada from the business community and even consumer advocates,” he said.
Meanwhile, McKenna urged people to wait for the final results of the negotiation period.
“We have to keep cool and carry on to use that line. Negotiating with the president is an extremely difficult task because there are a lot of issues, personality issues, that are involved in it,” he said.
“I think that Canada is doing a fine job today, but we have to remember the prize is worth the fight. We have almost a trillion dollars in business between our two countries.”
With files from The Canadian Press
