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

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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.

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Automotive

Federal government should swiftly axe foolish EV mandate

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From the Fraser Institute

By Kenneth P. Green

Two recent events exemplify the fundamental irrationality that is Canada’s electric vehicle (EV) policy.

First, the Carney government re-committed to Justin Trudeau’s EV transition mandate that by 2035 all (that’s 100 per cent) of new car sales in Canada consist of “zero emission vehicles” including battery EVs, plug-in hybrid EVs and fuel-cell powered vehicles (which are virtually non-existent in today’s market). This policy has been a foolish idea since inception. The mass of car-buyers in Canada showed little desire to buy them in 2022, when the government announced the plan, and they still don’t want them.

Second, President Trump’s “Big Beautiful” budget bill has slashed taxpayer subsidies for buying new and used EVs, ended federal support for EV charging stations, and limited the ability of states to use fuel standards to force EVs onto the sales lot. Of course, Canada should not craft policy to simply match U.S. policy, but in light of policy changes south of the border Canadian policymakers would be wise to give their own EV policies a rethink.

And in this case, a rethink—that is, scrapping Ottawa’s mandate—would only benefit most Canadians. Indeed, most Canadians disapprove of the mandate; most do not want to buy EVs; most can’t afford to buy EVs (which are more expensive than traditional internal combustion vehicles and more expensive to insure and repair); and if they do manage to swing the cost of an EV, most will likely find it difficult to find public charging stations.

Also, consider this. Globally, the mining sector likely lacks the ability to keep up with the supply of metals needed to produce EVs and satisfy government mandates like we have in Canada, potentially further driving up production costs and ultimately sticker prices.

Finally, if you’re worried about losing the climate and environmental benefits of an EV transition, you should, well, not worry that much. The benefits of vehicle electrification for climate/environmental risk reduction have been oversold. In some circumstances EVs can help reduce GHG emissions—in others, they can make them worse. It depends on the fuel used to generate electricity used to charge them. And EVs have environmental negatives of their own—their fancy tires cause a lot of fine particulate pollution, one of the more harmful types of air pollution that can affect our health. And when they burst into flames (which they do with disturbing regularity) they spew toxic metals and plastics into the air with abandon.

So, to sum up in point form. Prime Minister Carney’s government has re-upped its commitment to the Trudeau-era 2035 EV mandate even while Canadians have shown for years that most don’t want to buy them. EVs don’t provide meaningful environmental benefits. They represent the worst of public policy (picking winning or losing technologies in mass markets). They are unjust (tax-robbing people who can’t afford them to subsidize those who can). And taxpayer-funded “investments” in EVs and EV-battery technology will likely be wasted in light of the diminishing U.S. market for Canadian EV tech.

If ever there was a policy so justifiably axed on its failed merits, it’s Ottawa’s EV mandate. Hopefully, the pragmatists we’ve heard much about since Carney’s election victory will acknowledge EV reality.

Kenneth P. Green

Senior Fellow, Fraser Institute
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Business

Prime minister can make good on campaign promise by reforming Canada Health Act

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From the Fraser Institute

By Nadeem Esmail

While running for the job of leading the country, Prime Minister Carney promised to defend the Canada Health Act (CHA) and build a health-care system Canadians can be proud of. Unfortunately, to have any hope of accomplishing the latter promise, he must break the former and reform the CHA.

As long as Ottawa upholds and maintains the CHA in its current form, Canadians will not have a timely, accessible and high-quality universal health-care system they can be proud of.

Consider for a moment the remarkably poor state of health care in Canada today. According to international comparisons of universal health-care systems, Canadians endure some of the lowest access to physicians, medical technologies and hospital beds in the developed world, and wait in queues for health care that routinely rank among the longest in the developed world. This is all happening despite Canadians paying for one of the developed world’s most expensive universal-access health-care systems.

None of this is new. Canada’s poor ranking in the availability of services—despite high spending—reaches back at least two decades. And wait times for health care have nearly tripled since the early 1990s. Back then, in 1993, Canadians could expect to wait 9.3 weeks for medical treatment after GP referral compared to 30 weeks in 2024.

But fortunately, we can find the solutions to our health-care woes in other countries such as Germany, Switzerland, the Netherlands and Australia, which all provide more timely access to quality universal care. Every one of these countries requires patient cost-sharing for physician and hospital services, and allows private competition in the delivery of universally accessible services with money following patients to hospitals and surgical clinics. And all these countries allow private purchases of health care, as this reduces the burden on the publicly-funded system and creates a valuable pressure valve for it.

And this brings us back to the CHA, which contains the federal government’s requirements for provincial policymaking. To receive their full federal cash transfers for health care from Ottawa (totalling nearly $55 billion in 2025/26) provinces must abide by CHA rules and regulations.

And therein lies the rub—the CHA expressly disallows requiring patients to share the cost of treatment while the CHA’s often vaguely defined terms and conditions have been used by federal governments to discourage a larger role for the private sector in the delivery of health-care services.

Clearly, it’s time for Ottawa’s approach to reflect a more contemporary understanding of how to structure a truly world-class universal health-care system.

Prime Minister Carney can begin by learning from the federal government’s own welfare reforms in the 1990s, which reduced federal transfers and allowed provinces more flexibility with policymaking. The resulting period of provincial policy innovation reduced welfare dependency and government spending on social assistance (i.e. savings for taxpayers). When Ottawa stepped back and allowed the provinces to vary policy to their unique circumstances, Canadians got improved outcomes for fewer dollars.

We need that same approach for health care today, and it begins with the federal government reforming the CHA to expressly allow provinces the ability to explore alternate policy approaches, while maintaining the foundational principles of universality.

Next, the Carney government should either hold cash transfers for health care constant (in nominal terms), reduce them or eliminate them entirely with a concordant reduction in federal taxes. By reducing (or eliminating) the pool of cash tied to the strings of the CHA, provinces would have greater freedom to pursue reform policies they consider to be in the best interests of their residents without federal intervention.

After more than four decades of effectively mandating failing health policy, it’s high time to remove ambiguity and minimize uncertainty—and the potential for politically motivated interpretations—in the CHA. If Prime Minister Carney wants Canadians to finally have a world-class health-care system then can be proud of, he should allow the provinces to choose their own set of universal health-care policies. The first step is to fix, rather than defend, the 40-year-old legislation holding the provinces back.

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