The Perils of a Rising Loonie

Canada cut taxes? Unthinkable, or is it? David Frum at AEI examines:

Over the medium and long term, a government determined to improve its people's competitiveness will want to consider many policy reforms. It will want to toughen educational standards and upgrade its transportation and communications networks; simplify its bureaucracy and remove barriers to internal trade.
But in the very short run, which is the run Canada must be concerned with today, there is just one thing such a government can do: reduce taxes, especially taxes on investment.
From the point of view of the individual Canadian company, the most obvious effect of a rise in the Canadian dollar is to increase the real cost of labour--without any offsetting improvements in productivity. There are two obvious responses to a cost increase like that: (1) shift operations overseas to someplace where the unit-cost of labour is lower or else (2) invest in new technologies to substitute for labour. But a company contemplating a big new investment in plant or equipment will ask itself some very hard questions about where that investment should be placed--and the decision tends to go against high-tax environments like Paul Martin's Canada.