Former Bank of Canada governor Mark Carney speaks to reporters at the Liberal caucus retreat in Nanaimo, B.C., on Sept. 10.DARRYL DYCK/The Canadian Press
Mark Carney, the Liberal Party’s newly appointed economic-growth czar, made a couple of critical points on his way in to meet with the caucus this week.
The world is becoming a more “dangerous and divided place,” Mr. Carney ventured. Canada can no longer count on the rules-based international trade system that has underpinned growth in the West since the end of the Second World War. This country must become “an essential trading partner” with protectionism on the rise. And, he added, Canada “can’t win an industrial-policy arms race.”
That’s a good starting point for a diagnosis. The question is what cure Mr. Carney might prescribe. In announcing his appointment, the Liberals said the former Bank of Canada governor would come up with “new ideas for jobs and growth” ahead of next year’s expected federal election.
Sounds great, except for one small hitch: dealing with Canada’s economic woes requires a near-complete break with the current Liberal orthodoxy of rising taxes, soaring spending, big deficits and pricey industrial subsidies. A real program for revitalizing Canada’s economy surely starts with acknowledging the root problem – a continuing and worsening slide in productivity.
The latest Statistics Canada data on second-quarter economic growth are sobering: real gross domestic product per capita fell for the fifth quarter in a row. In the spring, when the streak was just three consecutive quarters, Finance Minister Chrystia Freeland’s budget shrugged it off as “a largely temporary, not systemic” problem that would fix itself.
Mr. Carney – who, in fairness, did criticize that budget for failing to focus enough on growth – could do great service to the Liberals, not to mention Canada, by making it clear that falling real GDP per capita is a real problem, and that it crystalizes not just our current economic underperformance but also the inherent threat of low productivity to Canadians’ longer-term prosperity.
A report released Thursday by Toronto-Dominion Bank lays out the stakes: living standards, as measured by real GDP per capita, were lower in 2023 than in 2014. The bank doesn’t state the obvious political conclusion, but here it is: Canadian living standards have fallen under the nine years of Liberal rule. Indictments of economic policies don’t get much sharper than that.
The consequences of failing to reverse this slide are unpalatable, to say the least. “Without improved productivity growth, workers will face stagnating wages and government revenues will not keep pace with spending commitments, requiring higher taxes or reduced public services,” the TD report states. That would be quite a legacy for a government that has prided itself on expanding social programs.
Acknowledging the problem is a necessary first step, but measuring it is also important. Ottawa needs to start assessing the impact of every budget measure on productivity (as it currently does for gender, for instance.) Additionally, the mandate of the Parliamentary Budget Officer should be expanded to scrutinize and monitor the impact of measures that impact productivity.
We’ll have more to say later in the week on international trade policy and domestic trade barriers, both key areas where Canada needs to take aggressive action. But the need is no less urgent on domestic fiscal policy.
In an interview, TD Chief Economist Beata Caranci said the start of any policy reform should be scrapping Canada’s habit of simply reacting to U.S. decisions in order to minimize the competitiveness gap. Instead, she said, Canada should pursue the much more audacious goal of becoming a more attractive business environment than the United States.
What might such an economic program look like? A sweeping reform of the tax code, including a single rate of corporate taxation. Restoring investment-friendly (and sector-agnostic) measures such as accelerated capital cost allowances that the government is allowing to wind down. Ending the dalliance with 1970s-era industrial policy subsidies that are already looking obsolete as technologies shift.
And, most of all, embracing the private sector (rather than, say, the Prime Minister’s Office) as the wellspring of Canadian investment, innovation and prosperity.
Mr. Carney certainly has the experience, reputation and intellectual heft to propose sweeping change. The question is whether he is willing to tell the Liberals some unwelcome truths – and, if he does, whether they will listen.