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Many business leaders have been bending ministers’ ears because they truly want Canada’s economy to prosper – for everyone. On Bay Street, the traditional trench warfare between Conservatives and Liberals has evolved

The Globe and Mail

It has become a buzzword, a mantra and a religion: growth, growth, growth. It’s a common refrain whenever the federal budget comes up.

Corporate titans want a growth budget, a commission on growth and a growing economy, too. Their calls grew so loud the federal government put the precious word in its budget title: A Plan to Grow Our Economy and Make Life More Affordable.

But what does a growth economy even mean? The idea is now so ubiquitous it stands for many things. For some Bay Street leaders, it is a veiled attack – a call for growth is another way of saying, “I can’t stand Trudeau.”

For others, it truly is an economic call to action. But the asks in budget consultations have varied from industry to industry. Boost productivity. Cut taxes. Give tax credits. Approve oil and gas projects. Ban energy development and incentivize clean energy infrastructure.

The reality: Many business leaders have been bending ministers’ ears because they truly want Canada’s economy to prosper – for everyone. On Bay Street, the traditional trench warfare between Conservatives and Liberals has evolved.

Many corporate leaders now see Ottawa’s heavy COVID-19 spending as a blessing. Perhaps it was overdone but, for the most part, the economic largesse was necessary.

Ottawa is getting closer to a vision for Canada’s green-economy future, but the budget shows it still lacks conviction

What’s gotten lost in the growth rhetoric is that the current state of the economy is making corporate leaders nervous. Canadians are sitting on hoards of excess savings – around $300-billion by some estimates – and they will spend it with a fury as the economy continues to reopen. Soaring inflation is a global problem, and it’s likely to stay that way because there’s still so much cash to be deployed.

Key economic indicators are also in stellar shape. On Friday, Canada’s unemployment rate hit 5.3 per cent, its lowest level in modern history.

Many economists think the Bank of Canada may need to hike interest rates seven or eight times in the next 18 months just to bring inflation under control. That is a major change in such a short period of time.

In the United States, it is widely expected the Federal Reserve will hike its key interest rate by 50 basis points at each of its next two meetings – which is very rare – and then likely hike even more after.

Average potential annual growth

in real GDP per capita

Per cent, selected OECD countries, 2020–2060

0

0.5

1.0

1.5%

New Zealand

Ireland

Finland

OECD

Australia

France

Spain

Japan

Italy

South Korea

U.S.

Netherlands

Switzerland

Sweden

Norway

Germany

Britain

Canada

THE GLOBE AND MAIL, SOURCE:

2022 FEDERAL BUDGET

Average potential annual growth

in real GDP per capita

Per cent, selected OECD countries, 2020–2060

0

0.5

1.0

1.5%

New Zealand

Ireland

Finland

OECD

Australia

France

Spain

Japan

Italy

South Korea

U.S.

Netherlands

Switzerland

Sweden

Norway

Germany

Britain

Canada

THE GLOBE AND MAIL, SOURCE: 2022 FEDERAL BUDGET

Average potential annual growth in real GDP per capita

Per cent, selected OECD countries, 2020–2060

0

0.5

1.0

1.5%

New Zealand

Ireland

Finland

OECD

Australia

France

Spain

Japan

Italy

South Korea

U.S.

Netherlands

Switzerland

Sweden

Norway

Germany

Britain

Canada

THE GLOBE AND MAIL, SOURCE: 2022 FEDERAL BUDGET

Yet, Ottawa hasn’t fully switched gears from pandemic spending mode.

Finance Minister Chrystia Freeland gave a nod to corporate Canada’s concerns in her budget speech on Thursday. “Our pandemic deficits are and must continue to be reduced. The extraordinary debts we incurred to keep Canadians safe and solvent must be paid down,” she said in the House of Commons. “Canada has a proud tradition of fiscal responsibility. It is my duty to maintain it – and I will.”

The government even included some budget charts that were rather critical of Canada’s economic outlook. One from the OECD projected Canada’s per capita real gross domestic product growth will be among the group’s worst over the next 40 years.

It is this gap in growth that has corporate leaders up in arms. Ultimately, they worry there isn’t – and won’t be – a clear plan to address any lacklustre performance. Talk only goes so far.

Yet executives haven’t necessarily helped themselves, either. Just asking for “growth” isn’t going to cut it. They must publicly convey what they want in very tangible terms.

They do have ideas, though, and they’ve been voicing them for some time, albeit often in private quarters. What follows is what they really mean when they beg for a growth budget – as well as some quick fixes the government can make to start mending its broken relationship with Bay Street.


Fix the federal balance sheet

Like many G7 counties, Canada piled on debt during the pandemic. “Our COVID response came at a significant cost,” Minister Freeland said in her budget speech. In 2020, Ottawa’s deficit amounted to 10.9 per cent of Canada’s GDP, according to the International Monetary Fund.

Bay Street sees it as necessary borrowing, but executives also worry about the track record. The federal Liberals have been in power for seven years, and they’ve never once posted a budget surplus. They also don’t project to post one for many years.

Government debt and deficit

forecasts for G7 countries

Percentage of GDP

2021

2022

2023

General government net debt

Canada

Germany

Britain

U.S.

France

Italy

Japan

0%

50

100

150

200

General government deficit

Germany

Canada

Japan

Italy

Britain

France

U.S.

0%

2

4

6

8

10

12

THE GLOBE AND MAIL, SOURCE:

2022 FEDERAL BUDGET

Government debt and deficit

forecasts for G7 countries

Percentage of GDP

2021

2022

2023

General government

net debt

General government

deficit

Germany

Canada

Canada

Germany

Japan

Britain

Italy

U.S.

Britain

France

France

Italy

U.S.

Japan

0%

2

4

6

8

10

12

0%

50

100

150

200

THE GLOBE AND MAIL, SOURCE: 2022 FEDERAL BUDGET

Government debt and deficit forecasts for G7 countries

Percentage of GDP

2021

2022

2023

General government net debt

General government deficit

Germany

Canada

Canada

Germany

Japan

Britain

Italy

U.S.

Britain

France

France

Italy

U.S.

Japan

0

2

4

6

8

10

12%

0

50

100

150

200%

THE GLOBE AND MAIL, SOURCE: 2022 FEDERAL BUDGET

The Liberals are quick to note that Stephen Harper’s Conservatives before them posted deficits for six straight years after the 2008-09 global financial crisis – and the pandemic was a much deeper economic shock. That’s true. But the economy has recovered much faster this time around – hence the record low unemployment rate.

The trouble with the federal debt is that it’s manageable – until it passes a threshold and isn’t. Many economists backed the Liberals when the government ran deficits after it was elected in 2015, because at least the debt-to-GDP ratio was falling. That isn’t the case any more. And crucially, interest rates are expect to soar, increasing the annual cost of debt.

Ottawa has been prudent about servicing its debt, often issuing long-term bonds that lock in low rates for many years. Relative to other G7 countries, Canada also isn’t in deep trouble at this point. Many of its peers are swimming in even more debt.

But the comparison game isn’t sustainable in the long run, especially with the OECD’s projection that dwindling energy revenues will hurt Canada’s GDP in a net-zero world.


Incentivize investments, then let the market work

A decade ago, the veterans of Canada’s venture capital industry were terrified. With multinationals such as Facebook and Netflix taking off, technology was becoming a dominant economic driver, yet Canada was barely backing its own startups.

The Canadian flag flies at the New York Stock Exchange after Shopify's IPO in May 2015. Now that Canada is home to some technology heavyweights, venture capital firms want to invest here all on their own.Lucas Jackson/Reuters

That changed in 2013, when the federal Conservative government launched the Venture Capital Action Plan, distributing $340-million to four “funds-of-funds” that invested in venture capital firms that back startups. The money was topped up by Ontario and Quebec, and the plan attracted $904-million from the private sector.

In the grand scheme of things, $340-million is peanuts for Ottawa. Yet, looking back, it is widely seen as doing wonders for Canada’s VC market, which has been thriving lately. Now that Canada is also home to some technology heavyweights, such as Shopify Inc. SHOP-T and Lightspeed Commerce Inc. LSPD-T, venture capital firms want to invest here all on their own.

That same strategy can be applied across sectors, but it doesn’t always have to be seed money from Ottawa. Tax incentives can do wonders, too.

Today, the oil sands look like an energy juggernaut again, but it wasn’t always this way. In their early years, their economic viability was in question. But energy firms were encouraged to explore through tax credits that can be applied against operating income. The same goes for the development of gas fields in the Montney formation in Alberta and British Columbia, which is now seen as world class.

Success begets success. Industry just needs a spark that encourages research and development.


The blueprint for economic growth already exists. Use it.

Governments have a habit of making busy work. They’ll call for a commission on a pressing issue, then ignore everything in the final report.

When it comes to economic growth, the Liberals can use this to their advantage. In 2020, the federal government launched the Industry Strategy Council, chaired by former Desjardins Group CEO Monique Leroux, and the group put together an “ambitious growth plan for building a digital, sustainable and innovative economy.”

It is an in-depth report, with very concrete suggestions on how to retool Canada’s economy. The recommendations came from industry leaders in sectors ranging from advanced manufacturing to agri-food, and they’re just sitting there, ready to be deployed.

Manufacturing productivity as GDP

per hour worked

Index 1995 = 100%

Canada

Global

220%

3.4%

200

180

Compound annual growth rate, 1995–2017

160

140

1.3%

120

100

80

2017

2009

‘95

1997

2005

2001

2013

THE GLOBE AND MAIL, SOURCE: CANADA’S

INDUSTRY STRATEGY COUNCIL, 2020

Manufacturing productivity as GDP

per hour worked

Index 1995 = 100%

Canada

Global

220%

3.4%

200

180

Compound annual growth rate, 1995–2017

160

140

1.3%

120

100

80

2017

2009

‘95

1997

2005

2001

2013

THE GLOBE AND MAIL, SOURCE: CANADA’S INDUSTRY

STRATEGY COUNCIL, 2020

Manufacturing productivity as GDP per hour worked

Index 1995 = 100%

Canada

Global

220%

3.4%

200

180

Compound annual growth rate, 1995–2017

160

140

1.3%

120

100

80

2017

2009

1995

1997

1999

2005

2001

2007

2013

2003

2011

2015

THE GLOBE AND MAIL, SOURCE: CANADA’S INDUSTRY STRATEGY COUNCIL, 2020

To the government’s credit, the world is a mess, so it keeps getting distracted. The pandemic has dragged on, and major geopolitical events keep emerging, such as Russia’s invasion of Ukraine.

The federal Liberals have also acted on industry recommendations from previous commissions, such as the one led by former McKinsey & Co. managing director Dominic Barton that encouraged boosting immigration and setting up innovation superclusters.

But lately, Ottawa’s fiscal priorities have been social programs. A national child care system is nothing to shrug at, and it is a growth driver in its own way, because it boosts work force participation (another Barton recommendation). Even so, the fear is that Canada isn’t ready to build an economy of the future. The oil price collapse during the first few months of the pandemic gave us a taste of how current economy could fare in 20 years, and it wasn’t pretty.


Don’t squander Canada’s rare economic luck

The pace at which Canada’s fiscal outlook has improved is staggering. Since the government’s fiscal update in late 2021, roughly $85-billion in new revenues over the next six years have emerged. Russia’s attack on Ukraine has sent oil prices soaring, and inflation is helping Ottawa in the short run, because it boosts nominal GDP.

The question now is what the government will do with this newfound money. Paying down debt isn’t very sexy. And the Liberals just signed an agreement with the NDP that will keep them in power through 2025 in exchange for funding certain social programs, such as dental care for low-income Canadians.

In the budget, $56-billion of the new revenue has been spent. But the government is currently planning for the extra $30-billion to improve its bottom line over the next six years.

Some will see that as fiscal restraint. Bay Street is more inclined to wonder why Canada still has a deficit at all if the economy is the powerhouse the Liberals are saying it is. It doesn’t mean Bay Street is right, but the Liberals will need to explain why they aren’t being more cautious on spending when everyone knows it is rare to have such economic luck.


A communications strategy for the economy would do wonders

The Liberals have a knack for messaging. It’s one big reason why Justin Trudeau has won three elections in a row.

Yet hardly any of their lines pertain to the economy. That started to change with the latest budget, of course, but for the most part, Bay Street and Ottawa are still speaking different languages.

This has needlessly complicated life for the Liberals, because it’s not as though they never listen. Industry has wanted carbon capture tax credits, and the government delivered them this week. It’s just that so much gets lost in translation between the two worlds.

What business leaders would love to see are some ambitious, but achievable, economic targets. Canada has long trailed the U.S. in GDP per capita. The Liberals could do wonders for themselves if they came out and said that’s unacceptable, developed a plan to close the gap, then repeated this message over and over again – the very same way they do during their highly successful election campaigns.


Recommendations for accelerating economic growth

In 2020, the federal government set up a task force headed by the Industry Strategy Council, a group of leading executives from nine sectors, to study the current economic landscape and the financial effects of COVID-19 on Canada’s industries. The report made wide-ranging recommendations for accelerating economic growth, touching on digital strategy, environmental innovation and business funding. Here are some highlights.

  1. Skill and talent: Develop Canadian talent by funding re-skilling programs to fill gaps in the labour force. Slow the brain drain out of the country with incentives such as wage top-ups. Attract highly skilled STEM (science, technology, engineering and math) graduates and visa holders “as other nations close their doors.”
  2. Infrastructure: Invest in trade-oriented sectors with “well-known infrastructure deficits,” including rail, roads, ports, airports and pipelines. Accelerate plans to ensure access to high-quality internet for 100 per cent of Canadians by 2026. Expand investment in artificial intelligence and 5G infrastructure.
  3. Green energy: Produce hydrogen fuel at a large scale and build infrastructure for domestic consumption and export. Invest in research and development of bio-based jet fuel, carbon capture technology, electric vehicle (EV) charging stations nationwide and energy-efficient buildings.
  4. Agri-food: Support transformation of raw goods to allow Canada to capture more value from processing. Remove internal trade barriers and improve agricultural efficiency with blockchain technology and automation of processing.
  5. Access to capital: Establish new special-purpose funds to support expanding businesses, including larger venture capital rounds “that have proven elusive in Canada.” Adapt current innovation support programs to help small and medium-sized enterprises that have reached $75-million in revenue to grow to $1.5-billion.
  6. Regulation: Fast-track regulatory reviews in the clean technology and resource sectors. Keep trying to reduce federal and provincial overlap.
  7. Digital economy: Continue to strengthen Canada’s Digital Charter and IP Strategy, and build a modern system to commercialize assets. Accelerate introduction of national data and cybersecurity standards and regulations.
  8. Resources: Sustainably develop production of critical materials, such as rare earth elements and nickel, for new technologies such as EVs and batteries. Develop a battery production pipeline.
  9. Procurement: Establish government procurement standards that support growing Canadian firms, particularly in strategic sectors impacted by COVID-19. Increase tech procurement from small and medium-sized enterprises.
  10. Health: Increase incentives for Canadian life sciences firms to list on Canadian and U.S. stock exchanges. Expand access to telehealth, particularly for rural and Indigenous communities.

With files from Andrew Willis, Sean Silcoff and Clare O’Hara


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