As the cost of living rises in Canada, many are struggling to afford housing, transportation, gas and even food. But data shows that even before the COVID-19 pandemic, the costs of everyday products and services in Canada have been some of the most expensive in the world.
Here’s where Canadians end up paying more than other countries, and why:
INTERNET AND CELLULAR SERVICES HAVE ‘WEAKENED COMPETITION’
Compared to other countries that are part of the Organization for Economic Co-operation and Development (OECD), the price of basic wireless internet and cellphone packages in Canada is consistently among the highest in the world. Costs can be up to eight times more per gigabyte of data.
According to a 2021 report by the Telecom Regulatory Policy at the Canadian Radio-television and Telecommunications Commission (CRTC), Canada’s average data usage “is fourth lowest among included countries, while its average revenue per user is the highest.”
Canada charges its users $11.92 per gigabyte per month, which is about six times the average charge in other countries of $1.86. Rewheel, a Finland-based telecom research firm, also confirmed in a 2021 report that the “Canadian wireless market … continues to be the highest or among the highest in the world,” compared to 40 other countries.
The firm placed the blame largely on the absence of telecom competition in Canada in a 2019 report that specifically investigated the country’s cellular market. The report also said the CRTC mandated “excessive” national roaming mobile data rates in Canada.
“The root cause of weak competition in Canada is structural (i.e. provincial network duopolies/monopolies). Significant structural remedies are required,” the report concluded.
Canada’s wireless network is currently dominated by Rogers, Bell and Telus; meaning Canadians have an unhealthy dependence on only three options. Its consequences were felt hard this year.
In July, Rogers experienced a major countrywide network outage, halting millions’ of Canadians’ ability to access their landline, cellphones, internet and television.
Rogers didn’t disclose how many customers were affected by the outage, however, the U.K.-based organization NetBlocks, which monitors cybersecurity, said the outage knocked out one-quarter of Canada’s observable connectivity.
Rogers had nearly 11.3 million wireless subscribers and more than 2.6 million internet subscribers in 2021, shows the company’s annual report for that year.
Several industries in Canada also took a hit from the outage. Businesses struggled to process payments from some customers, who were ultimately forced to take out cash. Financial institutions, including TD Canada Trust, BMO and the Royal Bank of Canada, said the outage had disrupted their operations.
Government agencies, such as Service Canada and the Canada Revenue Agency, reported outages to their phone lines as well.
LIMITED SUPPLY OF HOUSING, LABOUR
While demand for housing is rising in Canada, supply is struggling to keep up. Canadian housing prices have more than doubled between 2005 and February 2022, growing at least twice as quickly as those of any other G7 nation by the end of 2021.
Canada has the worst price-to-income ratio among developed nations, according to recent data by the OECD, tied with Portugal and the Netherlands.
Canada is currently in a “home-affordability crisis,” Carrie Freestone, an economist with RBC, told CTVNews.ca on Wednesday. Buying a home in the Canadian market has never been more unaffordable, she said, as surging interest rates continue to drive ownership costs to record-high levels, according to an RBC report published in September.
Canada experiences a lack of housing supply in prime locations and cities, according to the RBC report, and demand is exacerbated by increased immigration and a growing younger population.
According to a former contributor and certified financial planner Patricia Lovett-Reid, there is a significant demand for urban lifestyle living in Canada, particularly in Toronto, Vancouver and Montreal. The high concentration of purchasers has increased demand, which has raised prices as a result, she said.
The problem is exasperated by Canada’s labour shortage, which gets in the way of meeting housing supply targets, according to the Canada Mortgage and Housing Corp. (CMHC). In an October report, it found that the number of workers per residential unit under construction has been decreasing in Ontario, Quebec and B.C., leaving each worker with more tasks to complete.
The CMHC announced in October that even under best-case scenarios, the amount of construction on new houses will fall well below the affordable housing supply targets it has set for Ontario, B.C., Quebec and Alberta to reach by 2030.
“It’s very hard to get people to work sometimes because they got used to staying at home and a lot of people got subsidized by government agencies,” Dana Senagama, a senior specialist in market insights at CMHC and one of the report’s authors, told The Canadian Press on Oct. 6.
CREDIT CARDS: 40 PER CENT HIGHER INTERCHANGE FEES
Interchange fees – otherwise known as transaction fees or processing fees – refer to the amount a merchant or company must pay to be able to accept credit cards.
Whether making a purchase in person or online, the fee is deducted from each transaction and given to the bank that issued the card. (A fee is charged for debit card transactions, but it is much less compared to credit card purchases.)
Interchange fees have been restricted to less than one per cent in various regions of the world, including the European Union, Israel, the United Kingdom, China, and Australia. The average interchange fee in Canada, on the other hand, is 40 per cent higher at 1.4 per cent, making it one of the most expensive countries in the world to use a credit card.
It was announced last week that Canadian businesses can now pass interchange charges to customers directly, with the fees ranging from around one per cent to as much as three per cent for customers paying with credit cards.
Until recently, the high interchange rates were falling upon businesses, which would have to pay every time their customers made a purchase with credit. Now, that levy will fall upon Canadian consumers.
“Canadians pay among the highest credit card processing fees in the world but most don’t even know that they’re paying them now,” Canadian Federation of Independent Business (CFIB) president Dan Kelly told CTV’s Your Morning on Oct. 6.
“These costs are embedded in the costs of everything that we buy because they’re through merchants.”
Thanks to voluntary five-year agreements between the federal government and credit card firms, credit card transaction processing costs in Canada were reduced from an average of 1.5 per cent per each transaction to 1.4 per cent in 2020.
The finance minister at the time, Bill Morneau, predicted this charge reduction would result in annual savings of $250 million for small and medium-sized firms.
It is unclear why interchange rates in Canada are as high as they are but the recent move, which comes following a multimillion-dollar class-action settlement involving Visa and MasterCard, will now result in Canadian customers paying substantially more than most countries to use a credit card.
The Canadian government doesn’t have a cap on interchange fees, unlike many other countries.
The European Union set a 0.3 per cent interchange charge ceiling in 2015. Between 2015 and 2017, this adjustment alone helped EU businesses save up to two billion euros, according to a 2020 report by the European Commission.
According to a different 2020 study by the European Commission that looked into the impacts of the cap, “there is no systematic evidence” that banks reacted to the lowered fee by “increasing consumer banking fees or by making changes in issuing of cards.”
With files from The Canadian Press and CTVNews.ca’s Michael Lee
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