The long shadow threatening Canada’s long-term prosperity was not a ballot-box issue in 2021 election campaign.
There were plenty of promises on subsidies, tax breaks, tax credits and investment shelters, part of the deficit philosophy embraced by the Liberals, Conservatives and other major parties.
But they were subtle policies designed to win over a legion of voters here and there, everything from a Liberal plan to offering tax breaks for working seniors after age. NS 65 for a Conservative offer for a tax credit for any client of a Canadian startup.
major parties Too agree that billions of dollars in Were there to take tax revenue, if only the Canada Revenue Agency could hire a few thousand more auditors.
Missing was a plan to tackle Canada’s fundamental economic malaise, due to the long slide in productivity-enhancing investments. Instead, the parties scrambled to outwit each other over how to add to the massive pandemic debt they had committed over the past 18 months.
“It’s all about spending money,” says William Robson, chief executive officer of the CD Howe Institute, which released a study last week that clarified the extent of that disease.
Since 2015, the amount of capital invested has stabilized for each Canadian employee. What’s more, this country lags behind the United States and other countries. In the second quarter of 2021, businesses made only 50 cents for every available employee in Canada for every such dollar invested in the United States.
Over time, that disparity has meant less innovation, dwindling prosperity, relatively lower wages and lower tax dollars in Canada.
Mr. Robson points to other dangerous trends, including companies focusing on distributing capital through share buybacks and pension funds closing assets outside Canada. Both demonstrate a fundamental lack of confidence in the investment opportunities in this country.
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After the election, what should be the new government’s pandemic priorities?
There is never an opportune time for economic malaise, but the coming decade is particularly ominous. Quickly closing federal pandemic income support programs and reducing pandemic loans, even if only with respect to the economy, is only the beginning.
Strengthening the health care system, and financial strength of the provinces, as aging baby boomers enter their 70s and 80s, are also major challenges. Liberals and the NDP (and to a lesser extent, conservatives) proposed expanding affordable child care. This will help counteract some of the contraction in Canada’s labor force.
Liberals kept their child-care strategy on par with 21st century NAFTA; It’s not. The reality is that expanding child care will have a limited effect on growing Canada’s already high labor force participation rate. And in any case, simply adding workers to an economy does not solve the problem of low investment and low productivity.
The Conservatives proposed a massive increase in federal health transfers to the provinces, which over time would replace some of Ottawa’s fiscal strength. But the party did not specify how it would be accomplished. That commitment as well as a promise to balance the budget within 10 years without cutting spending. Meanwhile, the Liberals and the NDP chimed in on how to expand health care, without acknowledging the financial consequences of Canada’s graying out.
Tackling and adapting to climate change will also be extremely costly. There is now widespread agreement on the need to use taxes and regulations to reduce emissions. But the transition away from fossil fuel dependence will be costly, as will the bill for increasingly common environmental disasters such as British Columbia’s wildfires.
Beneath all of that is the question of the stability of federal finances, once a new government comes to power and last spring’s budget spent billions of dollars in what was already an exercise in fiscal ambition.
In that budget, the Liberals had a comfortable vision of Canada’s net debt relative to the economy falling to pre-pandemic levels by 2055. Comfortable, but built on hypothetical productivity, will grow to an annual growth rate of 1.2 percent over the next three decades, far higher than the 0.9 percent average from 2000 to 2019. Liberals also assumed that interest rates would remain near historic lows indefinitely.
The 0.3 percentage point difference may seem insignificant, but it was assumed that the rate of productivity would increase by a third even as the labor force contracts and the oil patch, one of the most productive and capital-intensive sectors of the economy, flatlines and curves. Is. This is a hope and a prayer, not a plan.
What might a realistic plan for treating Canada’s economic malaise look like? Mr. Robson suggests that it should begin with the acknowledgment that the country is in an international competition for capital, and that Canadian corporate taxes should be competitive with those in the United States.
Clear and bold proposals did not make their way into the forums of this campaign. Maybe next time.
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