Budget falls short in preparing Canada for difficult times

TORONTO—“The world economy faces a sobering reality,” the International Monetary Fund says in a strong and challenging wake-up message. It’s one that is not resonating in Canada in the way it needs to be, if Budget 2024 is any guide. On that score—how well the budget prepares Canada for a higher-productivity, stronger-growth economy—it deserves no more than a C+. The world economy—and Canada is part of that economy—is not growing fast enough to avert difficult economic times ahead. We face the challenges of climate change and the need to transition to a green world; an aging society with lower growth in working-age Canadians, and rising health and other costs of an older population; weak innovation and underinvestment in new productive technology; and fiscal constraints that limit our capacity to meet new challenges or respond to future shocks. We need healthier economic growth based on innovation-led productivity to enable us to deal with these challenges and sustain decent lives for our population. But politicians typically don’t want to talk about what’s needed because what needs to be done will be highly disruptive to people’s lives, and entail difficult changes if we are to get onto a better path. This applies both to those in power and those who seek it. Nor do we have private sector leadership that is credible. Yet, it is our ability to drive innovation and change that will shape the lives of Canadians, and none more so than the youngest generations. Short-term pain for long-term gain is a hard sell at the best of times, but even more difficult when a country—and Canada is a good example—lacks the leadership skills, the vision on what needs to be accomplished, a credible plan setting out the steps need to make progress, and continuing policy review to ensure we are on track to reach a targeted better place. There are ways. Instead of a budget that sees young people primarily as victims—and there have been major failures, including access to housing—why not challenge them to be part of the solution? In her budget speech, Finance Minister Chrystia Freeland said millennials and Gen-Z “need to see and believe that our country can work for them.” In his 1961 inauguration as U.S. President, John F. Kennedy invited Americans not to look to what the country could do for them, but what they could do for their country. Creating a new Canada should challenge and enable younger Canadians to be part of the solution. In its April 2024 World Economic Outlook, the IMF warns that “the global growth rate—stripped of cyclical ups and downs—has slowed steadily since the 2008-09 global financial crisis,” and “without policy intervention and leveraging emerging technologies, the stronger growth rates of the past are unlikely to return.” The IMF expects global growth to run at 2.8 per cent a year by 2030, compared to the recent historical average of 3.8 per cent. Moreover, world population will continue to grow, so that per capita growth will be even lower. Canadian per capita GDP growth averaged 0.6 per cent a year from 2006 to 2015, based on inflation-adjusted purchasing power dollars, but from 2016 to 2023 averaged just 0.3 per cent a year, or just half the earlier rate. For the two years 2024-2025, the IMF expects an average annual decline of 0.5 per cent. This is the picture of a stagnating economy. The evidence has been there for some time: weak business investment in innovation and poor productivity performance, inadequate public support for investment in fundamental research and higher education, an excessive dependence on foreign corporations so that Canada is becoming a branch-plant economy, a failure to scale up Canadian businesses and retain intellectual property ownership, a complacency over the foreign takeover of so many promising domestic firms, a lack of competition, a financial system that fails to meet the needs of a new economy, a failure to diversify export markets, and a growing shift to protectionism. The IMF attributes more than half the decline in growth to the deceleration of what economists call total factor productivity (TFP), a proxy for innovation. This is the economy’s speed limit, since it represents the level of growth an economy can have without triggering higher inflation. In Canada, our speed limit has been shrinking. Moreover, the IMF fears, “the pace of TFP growth is likely to continue to decline,” underlying the need for much greater attention to a growth agenda that enhances innovation and productivity. What we are really looking for is a higher potential growth rate for the economy driven by improved productivity. According to a recent report from Statistics Canada, multifactor productivity (similar to TFP) increased 0.6 per cent in Canadian business sector in 2022, after a decline of 2.2 per cent in 2021. From 2000 to 2015 it declined at an average annual rate of 0.2 per cent, and averaged just 0.1 per cent in 2015-2022. The global growth decline implies worsening prospects for future living standards, the IMF warns, and could become self-fulfilling since expectations of weaker growth could deter investment in innovations and new production capacity, in turn weakening prospects for improved productivity. To be sure, Budget 2024 makes some useful ideas that could improve, largely at the margin, Canada’s innovation performance and, hence, the potential for growth. Fairness was the principal theme: “fairness for every generation”. But it falls far short in spelling out to Canadians the reality of the challenges we face, and what is required to make things better. It is another transactional budget that seeks to send an "all’s well" kind of message when what we need is a frank and strategic budget that is open to Canadians about what we must do. For this reason, Budget 2024 falls far short in setting us on a course for a better future. David Crane can be reached at crane@interlog.com. The Hill Times

Budget falls short in preparing Canada for difficult times

The government presented another transactional budget that seeks to send an 'all’s well' kind of message when we need a frank and strategic budget that is open to Canadians about what we must do.

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Budget falls short in preparing Canada for difficult times

The government presented another transactional budget that seeks to send an 'all’s well' kind of message when we need a frank and strategic budget that is open to Canadians about what we must do.

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