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Business Commentary The federal budget must help Canada keep pace with the world

Craig Alexander is partner and chief economist at Deloitte.

For a federal government facing a general election in October, its March 19 budget must contain a host of commitments designed to be attractive to voters.

Whether it’s help for first-time homebuyers, building a foundation to establish a national pharmacare program or new measures to help Canadians train for the jobs of the future, we can expect some new items to be announced.

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For an economist like me, however, the budget is a chance to hear the government’s plan for ensuring the long-term competitiveness of the economy – a catalyst for raising the standard of living for all Canadians.

In partnership with the Business Council of Canada, we recently examined how Canada compares with 12 key global competitors, including the United States, Britain, Germany, France and Japan. “Canada’s Competitiveness Scorecard” provides the public and private sectors with a necessary baseline across eight critical dimensions that make a country competitive – or uncompetitive – and an important method to measure progress on talent, economic stability, capital and investments, customers, infrastructure, innovation, taxation and regulation.

It won’t come as a surprise to many that Canada’s talent is one of our major competitive advantages – measured as world-class in our analysis, outperforming our global competitors on educational attainment. There is certainly truth behind the claim that our young people are our most valuable natural resource. We have a strong public education system, with secondary school students outperforming the Organization for Economic Co-operation and Development average in math, science and literacy.

Our talent riches don’t end there. In 2017, Canada had the highest employment rate for newcomers – nearly three-quarters of new Canadians find jobs compared to a peer average of only 64 per cent. This data is proof of our position in the world as a top destination of global talent.

The federal government’s commitment to investing in skills development, building on the recently announced Future Skills Centre, will help Canadians stay at the top of the world rankings. But while this is all positive, our analysis indicates Canada’s ability to compete relies on many other factors.

According to our analysis, greater focus and action are needed on innovation, taxation and regulation, the three areas where Canada lags the furthest behind its global competitors. Canada produces far fewer patents per capita than leading countries such as the United States and South Korea, and the World Bank 2019 Doing Business Report shows our ranking has fallen from sixth place in 2006 to 22nd today due to increased regulation and red tape.

Although Finance Minister Bill Morneau has made it clear he would not be lowering corporate income tax rates in response to a drop introduced in the United States, the federal government could make a few select tax changes to promote innovation.

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Some options we have been calling for include enhancing the Scientific Research and Experimental Development Tax Incentive Program and giving consideration to a patent box to encourage the commercialization of intellectual property.

An announcement we would strongly encourage – and without a fiscal impact – would be a pledge to conduct a broad review of the Canadian tax system. This could set the stage for creating simpler and clearer tax laws, allowing Canada’s business sector to concentrate on improving productivity and competitiveness through capital investments and job creation.

This budget will likely reaffirm various commitments on reducing regulatory burdens and interprovincial trade barriers made in Minister Morneau’s Fall Economic Statement, such as the creation of an External Advisory Committee on Regulatory Competitiveness and a Centre for Regulatory Innovation.

These are moves in the right direction and address some of the issues outlined in our competitiveness scorecard. But what we need is progress, something all governments and the business community in Canada have found hard to sustain.

I’ll be the first to admit that a single federal budget will not solve all the complex challenges hindering Canada’s competitiveness. While we can expect pre-election spending and investment announcements in this budget, the government will have to carefully choose to deploy its limited funds.

Election strategy is understandable, but it’s also important to see past any headline-grabbing budget initiatives and look for measures that will have a significant impact on improving Canadian competitiveness.

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The longer any government fails to pledge to make these investments and reforms, the further Canada will lag behind its competitors.

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