[dragonwriter]

> Revoking citizenship is not a penalty.

Yes, it obviously is.

> Canada already does not grant citizenship to children born to foreign diplomats working in Canada.

Essentially no country recognizing jus soli does that for essentially the same reason that diplomatic immunity exists (and affecting the exact same set of people subject to diplomatic immunity)—the presence of diplomats in a country is a convenience for both the sending and receiving country, which, in the interest of relations between the two countries, died not have the legal effect that that presence would otherwise have for the individuals. Non-diplomats who are employed by a foreign government within a country are but tested the same way.

> It's not clear that simply not declaring your employer makes you immune from the law

Declaration isn't the point. Non-citizens openly working for a foreign country in non-diplomatic roles aren't covered either. The diplomat's unique status as, essentially, a mutually-recognized extension of the foreign state is the point.