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Liberal Member of Parliament Marc Garneau smiles as he announces his run for the leadership of the Liberal party during a news conference in Montreal, November 28, 2012. (CHRISTINNE MUSCHI/REUTERS)
Liberal Member of Parliament Marc Garneau smiles as he announces his run for the leadership of the Liberal party during a news conference in Montreal, November 28, 2012. (CHRISTINNE MUSCHI/REUTERS)

Marc Garneau: New taxes and spending cuts aren’t the only things government can do Add to ...

Today, across the country, Canada’s governments – federal, provincial, territorial, municipal – face the same challenge: slow economic growth in the medium term. A weakened Europe and a burgeoning U.S. deficit have led to volatile markets and weak global demand. The effect has been slow job creation and stubborn deficits across the country.

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As policy makers, as Canadians, we debate the best course of action. Stuck between the desire to balance budgets while maintaining essential services, our politics have distilled our choices to two: raise taxes or cut spending.

Where the NDP have proposed new taxes on those who generate higher incomes, the Conservatives have rejected any tax increases, opting instead for deep cutbacks on spending.

Not just in Canada, this debate rages across the globe. In response to the euro crisis and in response to the U.S. “fiscal cliff,” the debate is locked on how much to raise taxes and how much to cut spending on programs such as Medicare and Social Security.

But must we face such a dichotomous choice?

Canada is now relatively unique in the developed world. Because of sound fiscal management in the 1990s and strong resource sectors, we have been left relatively unscathed from the Great Recession. This despite some serious structural weaknesses in Canada’s economic competitiveness.

In its most recent economic forecast, the Organization for Economic Co-operation and Development (OECD) noted Canada’s poor competitiveness in export markets. For decades, Canada’s productivity growth has been weak. Today, the average Canadian worker produces 20 per cent less than U.S. workers, and the trend is getting worse. Our lacklustre productivity means that Canadian workers make less for each hour worked compared to many of their counterparts in other OECD countries.

Compared to other nations, Canadian businesses invest less on workplace training on a per-capita basis and our business investments in information technology, R&D and innovation remain weak. Canada is now losing ground in key sectors in the global economy: advanced manufacturing, telecommunications and health sciences, to name a few. Today high-tech is less than 2 per cent of the TSX.

In short, Canada’s economy is failing to meet its potential.

Yet, in this global downturn, despite our poor competitiveness, Canada has emerged with relative strength. This is an opportunity. Rather than coast on our low-hanging fruit, our natural resources, if we tackle our known weaknesses, if we are smart and invest, we can build Canada into an even stronger global economic force. We can carve out new niches of comparative advantage, build new globally competitive businesses that will create thousands of jobs here at home. We need to be aggressive while our competitors are at a disadvantage. Now, is our time to get a leg up.

And growth is the key. Rather than choose higher taxes or spending cuts, let us invest wisely to build growth and growth will bring higher incomes, greater prosperity and tax revenues to fund services.

But many a politician has sold the promise of economic growth to solve all problems. The reality is economic growth is slow to build. I will not sell false promises – in the short-term, in order to bring the federal budget closer to balance, spending will need to be restrained.

In the long run however, economic growth holds the key to preventing even deeper cuts, particularly given the looming demographic shift. And Canada’s weak competitiveness is the evidence that shows that this is possible. Our unmet potential means we have the potential to grow.

But we must stop tinkering. For decades, governments have failed to get the job done. Giant novelty cheques used by politicians for photo ops and Economic Action Plan ads are not enough.

Let’s get rid of special tax preferences and make our tax system more efficient. Instead of government handouts, let’s free markets to carve out new sectors, develop new technologies and with it new jobs. Let’s make sure skilled new Canadians and young Canadians are integrated quickly into the workforce and we grow our companies into global leaders.

The choices we face need not be stagnant ones, unpalatable choices of tax increases or deep spending cuts. There is another path. We must simply be bold enough to take it.

Marc Garneau is the Member of Parliament for Westmount Ville-Marie and a candidate for the leadership of the Liberal Party of Canada.

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