Canada is hiking taxes and regulating business as the neighboring U.S. economy booms

Good morning.

Tall poppy syndrome is shorthand for the tendency to tear down a successful person or venture, like cutting down a flower that grows taller than the rest. When Morgan Stanley’s Melbourne-born executive chairman James Gorman said it during an interview a few years ago, his American colleagues didn’t understand what it meant. I did. Growing up in Canada, I’d heard the phrase a fair bit. (Women are especially familiar with the concept.)

The term came up again this weekend when I went to Niagara-on-the-Lake for the OG100 CEO Summit, which convenes Ontario business leaders, policymakers and experts to discuss trends and strategies for success. Because the conversations were held under the Chatham House rule, I can't quote specific people, but I can convey some of the frustration and data I heard there.

There was discussion about Canada’s widening productivity gap. In 1984, Canadian workers produced 88% of the GDP per hour produced by U.S. peers; in 2022, it fell to 71%, according to a recent Bank of Canada report. That divide is often blamed on Canadian business leaders. They don’t invest enough in R&D and technology, putting their workers at a disadvantage. They’re told to take more risks and innovate to grow.

But regulation plays a role, too. One CEO said it took 16 years to get approval to alter critical infrastructure that would have taken a fraction of the time south of the border. Others had similar stories of red tape, and I’ve heard several U.S. leaders complain about Quebec’s expanding French-language laws, all of which make it harder to thrive, never mind rise above the rest.

What makes this discussion timely is that the government of Prime Minister Justin Trudeau recently announced an increase in capital gains taxes that would boost the taxable portion to 66.7% of capital gains—up from 50%—for corporations and trusts, as well as for individuals on gains over $250,000 a year. That could translate to a 33% tax increase on investing activity, according to John McKenzie, CEO of TMX Group, which owns the Toronto Stock Exchange and TSX Venture Exchange. As he said on an earnings call Friday, the government should be “focused on attracting talent, capital and competing for global investment flows.”

The job of raising taxes and setting policy is always a fine balance, and Canada has natural advantages when it comes to skills, immigration, resources, innovation and quality of life. But the need for digital transformation and the reality of a faster-growing U.S. economy does make one wonder if now’s the time to be extracting more costs from business.

In other words, let the poppies grow.

Diane Brady
@dianebrady
diane.brady@fortune.com

This story was originally featured on Fortune.com