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Federal government should tackle Canada’s productivity crisis in upcoming budget

Published

3 weeks ago

5 minute read

From the Fraser Institute

By Jock Finlayson

In late-2014, per-person gross domestic product (GDP), a common indicator of living standards, stood at $58,162 (adjusted for inflation). By the end of 2023 it was actually slightly lower. This means Canadian living standards haven’t increased in a decade.

In a recent speech, the Bank of Canada’s senior deputy governor highlighted the risk posed by chronically sluggish productivity growth to the country’s living standards. She also noted that stalled productivity makes it harder to reduce inflation and keep it at (or close to) the Bank’s 2 per cent target.

Productivity is conventionally defined as the value of economic output per hour of work. Over time, it’s the most important determinant of overall economic growth. In a mainly market-based economy such as Canada’s, particular attention should be paid to the productivity performance of the business sector.

Unfortunately, here the news isn’t good.

Business sector productivity has flatlined in Canada, with the level of output per hour worked essentially unchanged from seven years ago. This pattern of productivity stagnation, in turn, is the principal reason why the value of economic output per person has stalled in Canada. In late-2014, per-person gross domestic product (GDP), a common indicator of living standards, stood at $58,162 (adjusted for inflation). By the end of 2023 it was actually slightly lower. This means Canadian living standards haven’t increased in a decade. That’s not a picture any Canadian citizen or policymaker should be happy about.

For many people, GDP is an abstract concept that doesn’t easily map to their lived experience. But the level and rate of growth of GDP clearly matter to the wellbeing of citizens. Academic studies confirm that worker wages are based in part on the productivity level of their employers. Put simply, the most productive businesses generally pay higher wages, salaries and benefits.

Moreover, over time individual and household incomes can only grow if the economy itself generates more output per hour of work and per person. When per-person GDP increases by 2 per cent a year (after inflation), average income doubles within 35 years. With 1 per cent annual growth in per-person GDP, it takes 70 years. At 0.5 per cent growth in per-person GDP, 139 years must pass before the average income will double. In Canada, per-person GDP has been declining outright, an alarming and unusual trend.

Addressing Canada’s productivity crisis should be job one for the federal government’s 2024 budget, which the Trudeau government will table on April 16. In the early 1980s, Canada was roughly 88 per cent as productive as the United States, measured by the value of output per hour of work across the economy. By 2022, that figure had dropped to 71 per cent, and it’s continued to decline since then.

What can be done? So far, the Trudeau government has relied on population growth fuelled by high levels of immigration to drive economic growth. That strategy has manifestly failed, as the government itself recently (if sheepishly) acknowledged by dialing back the numbers of non-permanent immigrants who will be admitted to the country.

A smarter approach is to boost investment in the things that make businesses and workers more productive—machinery, equipment, digital tools and technologies, intellectual property, up-to-date transportation and communications infrastructure, and research and development focused on bringing innovative products and ideas to market, rather than keeping them in the lab or in academic institutions. Canada’s record is poor in most of these areas, as evidenced by the fact we trail far behind the U.S. and many European countries in the level of business investment per employee.

That will need to change if we hope to up our game on productivity and lay the foundations for a more prosperous Canada.

Author:

Jock Finlayson
Senior Fellow, Fraser Institute 
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WEF panelist suggests COVID response accustomed people to the idea of CBDCs

Published on May 1, 2024

By

Central Bank of Bahrain governor Khalid Humaidan

From LifeSiteNews

By Tim Hinchliffe

When asked how he would convince people that CBDCs would be a trusted medium of exchange, Bahrain’s central bank governor said that COVID made the digital transformation ‘something of a requirement’ that had ‘very little resistance.’

Central bank digital currencies (CBDCs) will hopefully replace physical cash and become fully digital, a central banker tells the World Economic Forum (WEF).

Speaking at the WEF Special Meeting on Global Collaboration, Growth and Energy Development on Sunday, Central Bank of Bahrain governor Khalid Humaidan told the panel “Open Forum: The Digital Currencies’ Opportunity in the Middle East” that one of the goals of CBDC was to replace cash, at least in Bahrain, and to go “one hundred percent digital.”

Humaidan likened physical cash to being an antiquated “analogue” technology and that CBDC was the digital solution that would hopefully replace cash:

“I thank this panel and this opportunity. It forced me to refine my thoughts and opinions where I’m at a place comfortably now that I’m ready to verbalize what I think about CBDC,” said Humaidan.

If we think cash is the analogue and digital currency is the form of digital – CBDC is the digital form of cash – today, clearly we’re in a hybrid situation; we’re using both.

We know in the past when it comes to cash, central bankers were very much in control with all aspects of cash, and now we’re comfortable to the point where the private sector plays a big role in the printing of the cash, in the distribution of the cash, and with the private sector we use interest rates to manage the supply of cash.

The same thing is likely to happen with CBDC. Yes, the central bank will have a role, but at some point in time – the same way we don’t call it ‘central bank cash’ – we’re probably going to stop calling it central bank digital currency.

“It’s going to be a digital form of the cash, and at some point in time hopefully we will be able to be one hundred percent digital,” he added.

When asked how he would convince people that CBDC would be a trusted medium of exchange, Bahrain’s central bank governor said that people were already used to it and that COVID made the digital transformation “necessary” and “something of a requirement” that had “very little resistance.”

“Right now, many of our payments are digital. The truth is, I said that we’re in a hybrid model; there’s less and less use of cash,” said Humaidan.

I think from predominantly digital with a little physical, I think the transition to fully digital is not going to be a stretch.

People are used to it, people have engaged in it and certain circumstances did help. Its adoption rates increased because of COVID.

“This is where contactless started to become something of a necessity, something of safety, something of a requirement, and because of that there is very little resistance; trust is already there,” he added.

Meanwhile, European Central Bank president Christine Lagarde has been going around the world telling people that the digital euro CBDC would not eliminate cash, and that cash would always be an option.

Speaking at the Bank for International Settlements (BIS) Innovation Summit in March 2023, Lagarde said that a digital currency will never be as anonymous as cash, and for that reason, cash will always be around.

“Is it [digital euro] going to be as private as cash? No,” she said.

A digital currency will never be as anonymous and as protecting of privacy in many respects as cash, which is why cash will always be around.

If people want to use cash in some countries or in some transactions, cash should be available.

“A digital currency is an alternative, is another means of payment and will not provide exactly the same level of privacy and anonymity as cash, but will be pretty close in terms of complete neutrality in relation to the data,” she added.

A WEF Agenda blog post from September, 2017, lists the “gradual obsolescence of paper currency” as being “characteristic of a well-designed CBDC.”

Last year at the WEF’s 14th Annual Meeting of the New Champions, aka “Summer Davos,” in Tianjing, China, Cornell University professor Eswar Prasad said that “we are at the cusp of physical currency essentially disappearing,” and that programmable CBDCs could take us to either a better or much darker place.

“If you think about the benefits of digital money, there are huge potential gains,” said Prasad, adding, “It’s not just about digital forms of digital currency; you can have programmability – units of central bank currency with expiry dates.

You could have […] a potentially better – or some people might say a darker world – where the government decides that units of central bank money can be used to purchase some things, but not other things that it deems less desirable like say ammunition, or drugs, or pornography, or something of the sort, and that is very powerful in terms of the use of a CBDC, and I think also extremely dangerous to central banks.

The WEF’s Special Meeting on Global Collaboration, Growth and Energy Development took place from April 27-29 in Riyadh, Saudi Arabia.

“Saudi Arabia’s absolute monarchy restricts almost all political rights and civil liberties,” according to D.C.-based NGO Freedom House.

In the kingdom, “No officials at the national level are elected,” and “the regime relies on pervasive surveillance, the criminalization of dissent, appeals to sectarianism and ethnicity, and public spending supported by oil revenues to maintain power.”

Reprinted with permission from The Sociable.

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Parliamentary Budget Officer forecasts bigger deficits for years to come

Published on April 30, 2024

By

From the Canadian Taxpayers Federation

Author: Franco Terrazzano 

“Every penny collected from the GST will now go to cover interest charges on the Trudeau government’s credit card”

The Canadian Taxpayers Federation is calling on the federal government to cut spending and balance the budget following today’s Parliamentary Budget Officer report forecasting higher deficits.

“Budget 2024 was bad, but the PBO report forecasts the Trudeau government will be running even bigger deficits,” said Franco Terrazzano, CTF Federal Director. “This PBO report should be a wake-up call for Prime Minister Justin Trudeau: get a hold of your spending or interest charges will keep ballooning.”

The PBO projects a $46-billion deficit this year. Budget 2024 projected a $40-billion deficit.

“PBO’s projected budgetary deficits are $5.3 billion higher annually, on average, over 2023-24 to 2028-29,” according to the report.

In Budget 2023, Finance Minister Chrystia Freeland said the government would find “savings of $15.4 billion over the next five years.”

However, “in Budget 2024, the government announced $61.2 billion in new spending,” according to the PBO. “Since Budget 2021, the government has announced a total of $251.6 billion in new spending measures.”

Interest charges on the debt are expected to cost taxpayers $54 billion this year, according to Budget 2024.

“Every penny collected from the GST will now go to cover interest charges on the Trudeau government’s credit card,” Terrazzano said. “Trudeau must balance the budget, cut spending and stop wasting more than $1 billion every week on interest charges.”

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