The U.S. poses a serious threat of enticing Canada's skilled workers to move south

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The U.S. poses a serious threat of enticing Canada's skilled workers to move south Martin Pelletier: Three factors offer superior opportunities to build a family’s wealth and dramatically improve their current financial well-being Photo by Saul Loeb/AFP via Getty Images files

Article content It isn’t uncommon for the average Canadian to have a home country bias when it comes to their portfolio holdings, but that could change given the recent rally in the S&P/TSX composite and a rocketing loonie that makes foreign investments look much more attractive. But perhaps our wandering eye might go even further given the upcoming immigration changes in the United States. There’s a looming and serious threat of our neighbour enticing Canada’s skilled workers to head south to capitalize on superior opportunities to build their family’s wealth and dramatically improve their current financial well-being. We apologize, but this video has failed to load.

tap here to see other videos from our team. Try refreshing your browser, or The U.S. poses a serious threat of enticing Canada's skilled workers to move south Back to video This week, the New York Times obtained a 46-page draft blueprint — D.H.S. Plan to Restore Trust in Our Legal Immigration System — that really grabbed our attention. In it, the Joe Biden administration is making a 180 on the country’s existing immigration policy, aiming to make it both significantly cheaper and easier for people to move to the U.S.

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Article content In particular, we see three factors that may be just enough to tip the scales in convincing Canadians to make such a move when these changes come into effect. More opportunities Canada appears to be going all-in on non-producing assets such as real estate, with residential investment accounting for a whopping 54 per cent of GDP growth in Canada in Q1 and 10.3 per cent of total GDP. This surpasses the 9.3 per cent garnered from business investment on non-residential structures, machinery and equipment, and intellectual property.

Article content Other important areas such as research and development are also being ignored. Canada is the only country in the G7 where R&D as a percentage of GDP has been on the decline over the past decade, according to Organisation for Economic Co-operation and Development (OECD) data, and that has only gained tremendous downward momentum over the past five years. Meanwhile, other economies like the U.S. are already seeing the benefits of diversifying their economies into highly competitive and disruptive sectors such as technology, robotics, automation and renewables. Simply look at the number and size of the tech companies within the S&P 500, representing 27.5 per cent of the index, whereas tech accounts for 10.3 per cent of the S&P/TSX composite and is dominated by one company: Shopify Inc. Unfortunately, instead of encouraging innovation, the Canadian federal government (both past and present) has allowed politics to drive policy by continually supporting poorly run companies simply because of the province they reside in.

Article content Lower taxes The Biden administration may be increasing tax rates, but it is at a level that wouldn’t apply to most Canadians considering a move south. For example, the highest tax bracket for a Canadian is at an income level topping $214,000 per year, compared to US$518,000 in the U.S. Also, income tax rates are quite similar across provinces, but that is not the case in the U.S., where some states have little to no income tax. Therefore, the tax advantages could be quite significant for high-income earners. Looking ahead, we think material tax hikes are on the horizon, especially if the Liberals finally get their much-desired majority government, since someone beyond the Bank of Canada has to pay for the record-breaking deficits. Provincial and municipal governments are facing similar challenges, which could result in education and health-care cuts concurrent with those tax hikes. This could make U.S. company private health-care and education plans extremely enticing. Cheaper homes I recently read that the city of Hamilton is now more expensive than Los Angeles. Think about that for a second. Many younger highly skilled Canadians are simply priced out of their home markets when it comes to owning a home, but that’s not an issue in most U.S. cities, even those that are booming like Austin, Tex. For those more established in their careers and with the ability to take that south of the border, the temptation could be to lock in some huge gains on their home and buy an equivalent one in the U.S. for a fraction of the cost, or get a lot more home for the same price. It certainly helps that the Canadian dollar is the top performer in the G7 this year, thereby reducing the foreign exchange hit while offering the chance to get paid long term in the world’s reserve currency.

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