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Fraser Institute

Canada can solve its productivity ‘emergency’—we just need politicians on board

Published

8 months ago

5 minute read

From the Fraser Institute

By Jake Fuss

Policymakers are slowly acknowledging the problem, but their proposed solutions are troubling.

According to Carolyn Rogers, senior deputy governor of the Bank of Canada, it’s time to “break the glass” and respond to Canada’s productivity “emergency.” Unfortunately, the country is unlikely to solve this issue any time soon as politicians are doubling down on the policy status quo rather than making sorely needed reforms.

Worker productivity—the level of output in the economy per hour worked—is a crucial indicator of a country’s underlying economic performance. When productivity increases, we not only increase our output and efficiency, but worker wages typically rise as well.

According to Statistics Canada, the country’s productivity dropped for six consecutive quarters before eking out a small gain in the final quarter of 2023. Rogers is right, this is an emergency, and it’s unsurprising that living standards for Canadians are falling alongside our productivity. Since the second quarter of 2022 (when it peaked post-COVID), inflation-adjusted per-person GDP (a common indicator of living standards) declined from $60,178 to $58,111 by the end of 2023—and declined during five of those six quarters, now sitting below where it was at the end of 2014.

Policymakers are slowly acknowledging the problem, but their proposed solutions are troubling. Federal Finance Minister Chrystia Freeland, for instance, recently emphasized the importance of making “investments in productivity and growth.” Yet, the federal government increased taxes on capital gains in its recent budget, which will disincentivize investment in Canada. Usually, when a politician says the word “investment” this is a fancy way of saying we need more government spending.

And in fact, more government spending appears to be the popular solution to every problem for most governments in Canada these days. Canadian premiers and the prime minister already support this approach in health care even though it’s been tried for decades. The result? In 2023, the longest wait times for health care on record despite having the most expensive system (as a share of GDP) among high-income universal health-care countries.

And now, these same policymakers are advocating for the same approach to boost productivity—that is, throw taxpayer money at the problem and hope it will somehow go away.

But there’s hope—governments have other options. For starters, governments from coast to coast could eliminate interprovincial trade barriers, which limit productivity improvements by (among other things) shielding inefficient local businesses from competition from businesses in other provinces. Governments also effectively prohibit the entry of foreign-owned competitors in crucial industries such as telecommunications and air travel. There’s less incentive for Canadian firms to innovate or improve when there’s no threat to shake things up.

Moreover, if governments reduced regulatory red tape and subsequent compliance costs, firms could allocate more resources towards training their workers, investing in equipment, and producing new and better products. And if governments reduced tax rates on families and businesses, they could make Canada more attractive to productive businesses, high-skilled workers and investors. Our current relatively high tax rates on capital gains, personal income and businesses income discourage capital investment and scare away the best and brightest scientists, engineers, doctors and entrepreneurs.

The Trudeau government, and other governments in Canada, seemingly want to spend their way out of our productivity emergency. While some level of government spending can help improve productivity, continued spending increases reallocate resources from the private sector to the government sector, which is by nature less productive. Governments should impose credible restraints (i.e. fiscal rules) on the growth of government spending to prevent this crowding out of private-sector investment.

There are plenty of ways Canada can boost productivity. We just need policymakers to be on board.

Author:

Jake Fuss
Director, Fiscal Studies, Fraser Institute
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Canadian health care continues to perform poorly compared to other countries

Published on December 26, 2024

By

From the Fraser Institute

By Mackenzie Moir and Bacchus Barua

At 30 weeks, this year marked the longest total wait for non-emergency surgery in more than 30 years of measurement.

Our system isn’t just worsening over time, it’s also performing badly compared to our universal health-care peers.

Earlier this year, the U.S.-based Commonwealth Fund (in conjunction with the Canadian Institute for Health Information) released the results of their international health policy survey, which includes nine high-income universal health-care countries—Australia, Canada, France, Germany, the Netherlands, New Zealand, Sweden, Switzerland and the United Kingdom. Unfortunately, Canada continued to come in near or dead last on key measures of timely access. Most notably, Canada ranked worst for wait times for specialists and non-emergency surgery.

For example, whereas almost half (46 per cent) of Canadians surveyed indicated they waited two months or more for a specialist appointment, that number was just 15.1 per cent in the Netherlands and 13.2 per cent in Switzerland. And while one in five (19.9 per cent) Canadians reported waiting more than one year for non-emergency surgery, just half a per cent (0.6) of Swiss respondents indicated a similar wait. And no one in the Netherlands reported waiting as long.

What explains the superior performance of these two countries compared to Canada?

Simply put, they do universal health care very differently.

For example, the Netherlands, which ranked first on both indicators, mandates that residents purchase private insurance in a regulated but competitive marketplace. This system allows for private insurance firms to negotiate with health-care providers on prices, but these insurance firms must also accept all applicants and charge their policy holders the same monthly fee for coverage (i.e. they cannot discriminate based on pre-existing conditions).

In Switzerland, which ranked among the top three on both measures, patients must also purchase coverage in a regulated private insurance marketplace and share (10-20 per cent) of the cost of their care (with an annual maximum and protections for the most vulnerable).

Both countries also finance their hospitals based on their activity, which means hospitals are paid for the services they actually provide for each patient, and are incentivized to provide higher volumes of care. Empirical evidence also suggests this approach improves hospital efficiency and potentially lowers wait times. In contrast, governments in Canada provide hospitals with fixed annual budgets (known as “global budgets”) so hospitals treat patients like costs to be minimized and are disincentivized from treating complex cases.

It’s no surprise that in 2022, the latest year of available data, a lot more Swiss (94 per cent) and Dutch (83 per cent) reported satisfaction with their health-care system compared to Canadians (56 per cent).

No matter where you look, evidence on the shortcomings of Canada’s health-care system is clear. Fundamental reform is required for Canadians to have timelier care that matches what’s available in universal health-care countries abroad.

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Business

Canada’s chief actuary fails to estimate Alberta’s share of CPP assets

Published on December 23, 2024

By

From the Fraser Institute

By Tegan Hill

Each Albertan would save up to $2,850 in 2027—the first year of the hypothetical Alberta plan—while retaining the same benefits as the CPP. Meanwhile, the basic CPP contribution rate for the rest of Canada would increase to 10.36 per cent.

Despite a new report from Canada’s chief actuary about Alberta’s potential plan to leave the Canada Pension Plan (CPP) and start its own separate provincial pension plan, Albertans still don’t have an official estimate from Ottawa about Alberta’s share of CPP assets.

The actuary analyzed how the division of assets might be calculated, but did not provide specific numbers.

Yet according to a report commissioned by the Smith government and released last year, Alberta’s share of CPP assets totalled an estimated $334 billion—more than half the value of total CPP assets. Based on that number, if Alberta left the CPP, Albertans would pay a contribution rate of 5.91 per cent for a new CPP-like provincial program (a significant reduction from the current 9.9 per cent CPP rate deducted from their paycheques). As a result, each Albertan would save up to $2,850 in 2027—the first year of the hypothetical Alberta plan—while retaining the same benefits as the CPP. Meanwhile, the basic CPP contribution rate for the rest of Canada would increase to 10.36 per cent.

Why would Albertans pay less under a provincial plan?

Because Alberta has a comparatively younger population (i.e. more workers vs. retirees), higher average incomes and higher levels of employment (i.e. higher level of premiums paid into the fund). As such, Albertans collectively pay significantly more into the CPP than retirees in Alberta receive in benefits. Simply put, under a provincial plan, Albertans would pay less and receive the same benefits.

Some critics, however, dispute the estimated share of Alberta’s CPP assets (again, $334 billion—more than half the value of total CPP assets) in the Smith government’s report, and claim the estimate understates the report’s contribution rate for a new Alberta pension plan and overestimates the new CPP rate without Alberta.

Which takes us back to the new report from Canada’s chief actuary, which was supposed to provide its own estimate of Alberta’s share of the assets. Unfortunately, it did not.

But there are other rate estimates out there, based on various assumptions. According to a 2019 analysis published by the Fraser Institute, the contribution rate for a new separate CPP-like program in Alberta could be as low as 5.85 per cent, while AIMCo’s 2019 estimate was 7.21 per cent (and possibly as low as 6.85 per cent). And University of Calgary economist Trevor Tombe has pegged Alberta’s hypothetical rate at 8.2 per cent.

While the actuary in Ottawa failed to provide any numbers, one thing’s for certain—according to the available estimates, Albertans would pay a lower contribution rate in a separate provincial pension plan while CPP contributions for the rest of Canada (excluding Quebec) would likely increase.

Tegan Hill

Director, Alberta Policy, Fraser Institute
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