Craig Alexander is partner and chief economist at Deloitte Canada.
With federal parties unveiling their election platforms, Canadians should consider what each is offering in terms of improving our economic competitiveness.
This isn’t about boosting the financial performance of Canadian companies, although that would be welcome. The issue of competitiveness is fundamentally about improving the standard of living of Canadians. Since the end of the Second World War, the bulk of the rise in living standards has come from increased productivity; and productivity is another word for economic competitiveness.
Competitiveness is a critical issue today. If Canada continues to experience weak productivity, household income growth will struggle to exceed the rising cost of living, with the result being that Canadians will not feel as though they are getting ahead. This is a concern because political developments abroad, such as Brexit and support for protectionist policies in the United States, show the fallout of dissatisfaction by voters who feel that the political and economic system is not delivering the outcomes they deserve.
Deloitte developed a Competitiveness Scorecard for the Business Council of Canada to assess how Canada compares to its global peers. While we have strengths and weaknesses, our country faces several competitiveness challenges.
Canada’s greatest strength is its human talent, but there are still barriers to success for women, Indigenous people, youth, people with disabilities and newcomers that prevent their potential from being realized. At the same time, there are labour shortages in parts of the country. This combination of underemployment and skill scarcity calls for policies that break down barriers to opportunity and enhance skills.
Macroeconomic policy is another Canadian strength, as the Bank of Canada has tamed inflation and Canadian governments have better fiscal positions than their international peers. However, fiscal deficits are being run by the federal government and many provinces during the late stages of a business cycle. This reduces the scope for governments to support the economy during the next recession, so fiscal prudence should be a topic for public discussion.
Canadian companies have access to markets, at home and abroad. However, interprovincial trade barriers mean that the domestic market is fragmented. Companies also need more help unlocking the potential of the international trade deals that Canada has negotiated. One of our recent surveys indicated that only 10 per cent of Canadian companies planned to grow in international markets.
All of the political parties want to address housing affordability, but any new policies need to be mindful not to add to the accumulation of household debt, which is currently a key economic vulnerability.
Although the federal and provincial governments have increased infrastructure investment in recent years, there is still an infrastructure shortfall. Much of Canada’s infrastructure was built in past decades and is in need of replacement, repair or expansion. Underinvestment in public infrastructure constrains economic growth, business investment and job creation.
Canada lags in the realm of innovation. There have been many attempts in the past to address this shortfall, but progress has been limited. We need new and different government incentives to promote innovation. Meanwhile, the public sector is a growing part of the economy that could become more innovative itself. Innovation is fundamental to economic success and the prosperity of companies and workers.
Canada faces tax competitiveness challenges, in terms of both business taxation and personal-income taxation. The international tax landscape is shifting, as other countries become more tax competitive. This will make it harder for Canada to attract capital, expand our companies and retain talent.
Regulation is arguably the largest obstacle to business competitiveness. The goal should not be deregulation. Instead, the objective should be to have regulations that serve the public interest of creating outcomes that Canadians desire, but at the least economic cost. Canada is far from this goal. Effective and substantive regulatory reforms could unlock the growth potential of companies, raising employment, incomes and living standards. Governments and businesses are broadly singing from the same play sheet in terms of supporting regulatory reform, but what we need is real action, not words.
When it comes to infrastructure, innovation, regulation and taxation, Canada needs policies designed for the digital age. While the economy of the past was based on physical assets, it is now increasingly built on intangibles, such as software, brands, ideas and organizational structures. Unlocking the potential of new technologies requires governments to think differently, from immigration policy to retaining domestic talent to providing incentives for investment in new technology.
In the coming days, each party will offer Canadians their vision for the future of the country. This creates a useful opportunity to increase public discourse on how we create a prosperous Canada. That conversation has to involve competitiveness, now and for our collective future.