Trudeau and Poilievre aren’t focused on what needs to be done

TORONTO—On the eve of Budget 2024, there are many troubling signs that point to a difficult future. But there are scant indications that either the current government, or the government-in-waiting, is properly focused on what needs to be done. Canada urgently needs a bold growth strategy if we are to face the future with confidence, rather than channelling down into a despairing view that this country is broken and can’t be fixed. If Canada finds itself broken, it will be a self-inflicted fate. Yet much must be done to repair the damage that has been done. Our dollar continues to stagnate at a lowly US$0.73-$0.74 signifying our lack of competitiveness. If we had a strong, competitive economy, we would enjoy the benefits of a US$0.90 Canadian dollar, we would be richer, and better able to be useful in the world. Meanwhile, our stock market is the second weakest in the G7. Our GDP is showing little life, in contrast the United States. Canadian business investment in new capacity and innovation continues to lag our main competitors, and has contributed little to economic growth over the past decade. Our per capita GDP has been shrinking, not growing. Public and private debt poses a future threat, and limits our potential for new initiatives, or to address future shocks. Our poor productivity performance means we are not creating the wealth to do the things we need and want to do. We are not building a country for the future, one based on innovation and global reach. And even in areas where our government boasts of leadership—the green energy transition—we remain a nation heavily dependent on the oil and gas industry despite its high level of greenhouse gas emissions. A recent International Monetary Fund report—Call of Duty: Industrial Policy for the Post-Oil Era—warned that “oil exporters are essentially living on borrowed time” as “a conjunction of forces is pushing the world toward a rapid energy transition, away from fossil fuels toward renewables for power generation, transportation, buildings and industry.” Oil and gas exports account for about 26 per cent of our merchandise exports—so what will replace those exports for Canada? If we do nothing, if we fail to create new industries and new skills, we will be the shrinking attic of North America. In the lead-up to the federal budget on April 16, the government has been announcing a succession of new initiatives on everything from housing and mental health to artificial intelligence and defence. This is an opportunistic way to ensure the “good news” parts of the budget get more media play since the focus on Budget 2024 will be on the state of public finances, which is not expected to be a good-news story, despite assurances that all is in hand. While Ottawa and the provinces do not have a debt crisis today—in contrast to what the Chrétien government inherited from the Mulroney government—debt will be a challenge going forward, and one much more difficult to address with a sluggish and low-productivity-growth economy. But the real question—the one that matters most to Canadians—is the growth question. How are we going to raise the potential growth rate of our economy, the rate of growth that can be pursued without pushing inflation to a level that forces a slamming on the economic brakes? This is the speed limit for the economy. The key factors in determining the economy's potential growth rate are the rate of growth in the working age population, and their skills, and productivity growth from innovation. For Canada, as we age, that means more innovation. Canada’s potential growth rate has been stuck at between 1.8 and about two per cent, which is too low to meet our future needs. Raising the potential growth rate to three per cent would deliver big benefits. At two per cent it takes almost 35 years to double output and deliver real per capita gains; at three per cent it takes just 23 years, or 12 years less, to achieve the same result. So to put the challenge in one sentence: we need to raise our potential growth rate, our economy’s speed limit for sustained low-inflation growth. The Bank of Canada’s senior deputy governor, Carolyn Rogers, recently generated headlines by declaring this country's poor productivity performance “an emergency.” If this helps focus attention on the issue, that will be a good thing. But poor productivity and weak innovation have been real concerns for well over a decade or longer. And despite Rogers’ speech, the Bank of Canada and its economists have been missing in action on productivity issues over the past 10-15 years. Inattention has been an Ottawa disease. As Rogers did acknowledge, while productivity growth has strengthened in the U.S., “it hasn’t happened here. In fact, the level of productivity in Canada’s business sector is more or less unchanged from where it was seven years ago.” Moreover, Canadian productivity in 1984—the year that launched the Canada-U.S. Free Trade Agreement—was 88 per cent of the U.S. level. By 2022 it was just 71 per cent of the U.S. level. (One of the leading promises made by proponents of that trade deal was that the remaining productivity gap with the U.S. would be reduced if not eliminated.) But productivity, while it is about working smarter and about investing in innovation, education and infrastructure, also depends on creating new or reformed institutions. As one example, we want Canadian pension funds and mutual funds to invest more in building up home-grown companies. But that will require innovative changes in the incentives and institutions in financial markets. So the real test of Budget 2024 will not be how many goodies it hands out to Canadians, but whether it can deliver real confidence in a better Canada, based on a credible growth strategy that is also sustainable and fair. We need a higher speed limit—a potential growth rate of three per cent, not two per cent. David Crane can be reached at crane@interlog.com. The Hill Times

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Trudeau and Poilievre aren’t focused on what needs to be done

Canada urgently needs a bold growth strategy if we are to face the future with confidence, rather than channelling down into a despairing view that this country is broken and can’t be fixed. If we're broken, it will be a self-inflicted fate.

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