Craig Alexander is chief economist and executive adviser at Deloitte Canada
Canada needs a strong economic growth strategy, not only to help accelerate the recovery from the pandemic, but also to set the nation on the path to a more prosperous future. Businesses and governments have had to embrace change to respond and recover, but this also creates a golden opportunity to position Canada to thrive.
The current downturn is the largest in modern history. Were it not for the massive government stimulus, Canada would be experiencing a depression. The fiscal cost has been enormous, but it was the right response. And the government of Canada has promised to do even more. However, my conversations with business leaders and many Canadians suggest there is anxiety over running such large deficits.
With a federal government fiscal update to come soon, it is timely to discuss the appropriate stand for fiscal policy.
First and foremost, governments must continue to address the health risks. Combatting infection rates through investments in testing, contact tracing and health care are vital, as are efforts to develop and deploy a vaccine.
Second, government support to workers and businesses should continue. Now that economic boost from the reopening has faded, and Canada and our major trading partners are feeling the impact of the second wave, the pace of recovery is slowing dramatically. Income support programs must be maintained, and it is appropriate to target aid to businesses that were profitable before COVID-19, but are now at risk of failure. Fiscal stimulus such as infrastructure investments can also quicken the recovery.
However, the current crisis also creates an opportunity to fundamentally rethink public policy as a catalyst for long-term prosperity. It is not adequately understood that Canada was not on the path to prosperity before the pandemic. An aging work force, low investment and poor productivity meant the sustainable pace of economic growth over the next decade would be only 1.7 per cent a year. As a result, the improvement in Canadians’ standard of living would be slow. But bold policy changes now can create stronger sustained growth.
Given the aging of the work force, we need to remove the barriers that prevent some of our citizens from realizing their potential. This includes a stronger income-security framework and skills programs that are better aligned with labour market needs. Affordable and accessible child care that also provides early learning opportunities can improve the participation of women in the labour force, and help close the gender pay gap. Greater workplace accessibility for disabled Canadians can also add workers. Improved integration of newcomers into the economy through better recognition of skills, education and qualifications can increase labour productivity. More opportunities for youth and Indigenous people to develop in-demand skills can improve their outcomes and add to the labour force. The recession has disproportionately affected low-income and marginalized workers, exacerbating economic inequalities. Policies that reduce inequality are part of a pro-growth agenda.
Canada also needs to reduce barriers to trade and investment. This involves getting rid of interprovincial trade restrictions, reducing regulatory and financial barriers that constrain the growth of businesses, and making Canada a more attractive destination for foreign investment. To fully unlock the potential of digital technology, data privacy issues need to be resolved. Government investment in digital infrastructure as well as embracing the digitization of government, such as increased use of technology to deliver services, can also be a complement and catalyst for private-sector digital investment.
Anxiety over mounting government debt and the threat of future tax increases should be addressed, because both can dampen investment. Governments need to make a commitment to reduce deficits and debt accumulation over time, but the path to that fiscal rebalancing can be conditional on health and economic outcomes to allow flexibility in fiscal policy. Since governments are unlikely to raise taxes when the economy is weak and the recovery is protracted, it is an ideal time to launch a comprehensive review of the tax system that would allow future reforms to improve tax efficiency and competitiveness when governments start thinking about fiscal rebalancing.
Making progress in the above-mentioned areas can help accelerate economic growth, providing a stronger recovery and reducing the fiscal burden. Deloitte has done economic models that show what is possible. By removing barriers to individuals, raising investment and realizing the full potential of digital technology, Canada’s annual rate of economic growth over the next decade could be lifted to 2.7 per cent a year. A successful pro-growth agenda could create 2.3 million more jobs and more than $300-billion in additional income by 2030, generating dramatically more tax revenues to rebalance government finances and lift Canadians' standard of living above that of their international peers.
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