Budget 2022 won’t solve Canada’s productivity growth issue: Senator Loffreda
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“Our third pillar for growth is a plan to tackle the Achilles heel of the Canadian economy: productivity and innovation.” This is what Minister of Finance Chrystia Freeland said when she tabled Budget 2022 on April 7. It was a surprising and candid admission that Canada has a productivity growth issue.
Some argue the Canadian economy is thriving and that we have many reasons to be optimistic: the unemployment rate is 5.3% and our real gross domestic product (GDP) — driven by productivity growth — is more than a full percentage point above pre-pandemic levels. This is great news right now, but what’s the long-term forecast and how do we measure up to other countries?
According to projections from a recent report by the Organisation for Economic Co-operation and Development, Canada ranks last in terms of real GDP per capita between 2021 and 2060. Budget 2022 also lays out some projections on the future state of Canadian economy: it notes the real GDP growth rate between 1970 and 2021 was 2.6% and that it’s expected to drop to 2.5% between 2022 and 2026, and then again to 1.7% between 2027 and 2055.
But why is productivity growth so important?
In simple terms, growing Canada’s productivity means working more efficiently and smarter by increasing capital investments, favouring skills development for workers and investing in technological innovation. For example, we know that Canadian businesses only invest 50 cents per worker for every dollar an American business invests in its own worker.
Productivity growth is also closely related to improvements in our standard of living. Canada’s underwhelming productivity performance will make it difficult for future generations to enjoy the same income growth that previous and current generations have enjoyed.
In the budget, the government admits that “labour productivity growth in Canada has slowed from about 2.7% in the 1960s and 1970s to less than 1% today… [and] Canada has lagged behind other advanced economies in investing in and adopting new and innovative technologies.” So, what can Ottawa do to reverse this trend?
To the government’s credit, the budget has set out several policy initiatives that should help improve our growth trajectory. Three specific ones come to mind.
First, the new Canada Growth Fund is expected to attract substantial private sector investment to help meet certain economic policy goals.
Second, the promised Canadian Innovation and Investment Agency would help industries make the investments they need to “innovate, grow, create jobs, and be competitive in the changing global economy.”
Finally, the government’s decision to cut taxes for Canada’s small businesses should provide owners with savings that they can reinvest in their companies.
These three initiatives have laudable goals but don’t specifically address Canada’s productivity problems in a holistic way. The government must do more and do better to improve business investment in innovation and technology, reduce barriers and help our businesses grow — and in so doing, help Canadians improve their standard of living. We cannot ignore the data; Canada is lagging behind its international counterparts and we must act now.
The government acknowledged the issue in its 2021 budget — and yet, one year later, its newest policy commitments still fall short in addressing Canada’s productivity gap at its core.
The day before Budget 2022 was tabled, I argued in the Senate that the government needs “a clear and concise strategy” to boost Canada’s productivity — an action plan with set priorities and targets, industry buy-in and the ability to track results. Regrettably, the federal budget contains no such plan.
Other organizations and financial institutions agree. The Coalition for a Better Future described Budget 2022 as “a good first step” but issued an urgent call for “a comprehensive long-term plan for economic growth that is inclusive and sustainable.”
Late last year, RBC warned: “To avoid missing out on investment, innovation and talent, Canada must take a closer look at the overall policy framework. Specifically, structural policy – tax, regulation, competition, infrastructure, education, innovation and trade policy – must work in concert with sectoral strategies and government spending programs to address the challenges before us.”
In other words, the status quo is no longer acceptable. We need bold ideas that will make Canada the most attractive place to invest. I concede the challenges before us are huge — even overwhelming — but not addressing them and finding tailored solutions is a risk we can’t afford.
Senator Tony Loffreda represents the Shawinegan division of Quebec.
A similar version of this article appeared in the May 7, 2022 edition of The Suburban.
“Our third pillar for growth is a plan to tackle the Achilles heel of the Canadian economy: productivity and innovation.” This is what Minister of Finance Chrystia Freeland said when she tabled Budget 2022 on April 7. It was a surprising and candid admission that Canada has a productivity growth issue.
Some argue the Canadian economy is thriving and that we have many reasons to be optimistic: the unemployment rate is 5.3% and our real gross domestic product (GDP) — driven by productivity growth — is more than a full percentage point above pre-pandemic levels. This is great news right now, but what’s the long-term forecast and how do we measure up to other countries?
According to projections from a recent report by the Organisation for Economic Co-operation and Development, Canada ranks last in terms of real GDP per capita between 2021 and 2060. Budget 2022 also lays out some projections on the future state of Canadian economy: it notes the real GDP growth rate between 1970 and 2021 was 2.6% and that it’s expected to drop to 2.5% between 2022 and 2026, and then again to 1.7% between 2027 and 2055.
But why is productivity growth so important?
In simple terms, growing Canada’s productivity means working more efficiently and smarter by increasing capital investments, favouring skills development for workers and investing in technological innovation. For example, we know that Canadian businesses only invest 50 cents per worker for every dollar an American business invests in its own worker.
Productivity growth is also closely related to improvements in our standard of living. Canada’s underwhelming productivity performance will make it difficult for future generations to enjoy the same income growth that previous and current generations have enjoyed.
In the budget, the government admits that “labour productivity growth in Canada has slowed from about 2.7% in the 1960s and 1970s to less than 1% today… [and] Canada has lagged behind other advanced economies in investing in and adopting new and innovative technologies.” So, what can Ottawa do to reverse this trend?
To the government’s credit, the budget has set out several policy initiatives that should help improve our growth trajectory. Three specific ones come to mind.
First, the new Canada Growth Fund is expected to attract substantial private sector investment to help meet certain economic policy goals.
Second, the promised Canadian Innovation and Investment Agency would help industries make the investments they need to “innovate, grow, create jobs, and be competitive in the changing global economy.”
Finally, the government’s decision to cut taxes for Canada’s small businesses should provide owners with savings that they can reinvest in their companies.
These three initiatives have laudable goals but don’t specifically address Canada’s productivity problems in a holistic way. The government must do more and do better to improve business investment in innovation and technology, reduce barriers and help our businesses grow — and in so doing, help Canadians improve their standard of living. We cannot ignore the data; Canada is lagging behind its international counterparts and we must act now.
The government acknowledged the issue in its 2021 budget — and yet, one year later, its newest policy commitments still fall short in addressing Canada’s productivity gap at its core.
The day before Budget 2022 was tabled, I argued in the Senate that the government needs “a clear and concise strategy” to boost Canada’s productivity — an action plan with set priorities and targets, industry buy-in and the ability to track results. Regrettably, the federal budget contains no such plan.
Other organizations and financial institutions agree. The Coalition for a Better Future described Budget 2022 as “a good first step” but issued an urgent call for “a comprehensive long-term plan for economic growth that is inclusive and sustainable.”
Late last year, RBC warned: “To avoid missing out on investment, innovation and talent, Canada must take a closer look at the overall policy framework. Specifically, structural policy – tax, regulation, competition, infrastructure, education, innovation and trade policy – must work in concert with sectoral strategies and government spending programs to address the challenges before us.”
In other words, the status quo is no longer acceptable. We need bold ideas that will make Canada the most attractive place to invest. I concede the challenges before us are huge — even overwhelming — but not addressing them and finding tailored solutions is a risk we can’t afford.
Senator Tony Loffreda represents the Shawinegan division of Quebec.
A similar version of this article appeared in the May 7, 2022 edition of The Suburban.