Productivity emergency | Taking Canada out of its slippers

It’s 1982. Inflation is through the roof, at over 10%. The economy is on the ground, devastated by the worst recession since the crisis of the 1930s.

Prime Minister Pierre Trudeau then had the presence of mind to launch a broad reflection to make businesses more productive and more agile in the face of international and technological upheavals. The Macdonald commission will notably lead to the idea of ​​free trade with the United States, which Prime Minister Brian Mulroney will take up.

But the work remains unfinished. More than ever, Canada needs an electric shock.

And Justin Trudeau would be well advised to follow his father’s example and trigger deep and bold thinking to get the Canadian economy out of the comfort of its slippers.

For more than 40 years, Canada has been at the bottom of the pack in terms of productivity, which undermines the progression of our standard of living, as we exposed yesterday1. But this is not inevitable. We can – and we must – turn the tide. The future of the country depends on it.

Where to start ? We must break down the barriers that hinder trade within our own borders.

Canada is a vast country whose various regional markets remain compartmentalized, not only by geographic distance, but also by a host of provincial rules that hamper the free movement of products and workers.

Restriction on the sale of food and alcohol, costs, deadlines and paperwork for obtaining permits. Lack of harmonization in trucking and labeling rules, etc. A host of hassles complicate the lives of companies that want to do business in another province.

In effect, these rules inflate prices for consumers, which amounts to a 7% tax on products, two points more than the GST, according to Statistics Canada.

It’s not nothing !

Eliminating these barriers could increase our gross domestic product (GDP) by 4% (even more in Quebec), which represents $90 billion per year, or $2,300 per person, according to a study by the International Monetary Fund.2.

The Canadian Free Trade Agreement (CFTA), concluded by the federal government and the provinces in 2017, has not given the hoped-for results, due to numerous exceptions that the provinces do not want to eliminate. They fear suffering the economic and political repercussions without benefiting from the advantages if the other provinces do not follow suit.

The subject is delicate, because the provinces have their areas of jurisdiction. But if it becomes a tool of protectionism, we are collectively shooting ourselves in the foot. Canada has signed free trade agreements with more than 40 countries, but is struggling to create a free market at home. Isn’t that ironic?

To boost competition and productivity, governments would also do well to redesign their industrial policy which dates from a bygone era, that of high unemployment.

Job creation was a mantra that no longer has relevance in a world where there is a shortage of brains, not jobs. Today, it is above all investment and innovation that must be stimulated.

Programs have been added over the years without evaluating their effectiveness. Quebec is a champion of business assistance, with tax credits two to three times more expensive than Ontario, all things considered.

Are we getting value for our money? Nothing is less sure. Fortunately, the Coalition Avenir Québec announced a complete review of its tax system during the last budget. And Ottawa has undertaken a reflection on these research credits.

Come on! Let’s do a big spring cleaning of the multitude of small credits which unduly complicate the system and which divert resources necessary to stimulate the productivity of companies with greater potential.

Let’s make sure the aid is better targeted. For example, tax assistance for research and development has more impact for small businesses which struggle to do so, due to lack of financing and specialized labor, than for large businesses which would do so entirely. way.

There are many other ways to improve our productivity and prosperity. Improve training and requalification. Promote diversity in business to stimulate innovation through the clash of ideas. Encourage businesses to invest in their productivity instead of relying on cheap foreign labor.

The idea is not to blame immigration for Canada’s long-standing productivity problems. But, as Scotiabank economists point out, two-thirds of the decline in productivity since 2021 stems from immigration, which has caused the population to jump by 1.2 million in 2023, an increase of 3. 2% not seen since 19573. A shock to the economy.

Finally, there is no shortage of ideas to shake Canada up. Will the political will be there? The next federal budget, in mid-April, will give us an overview.

1. Read our editorial “Why is our standard of living taking a nosedive? »

2. Consult the IMF study on the liberalization of internal trade in Canada (in English)

3. Check out the Scotiabank analysis


Leave a Comment