Cana­dian com­pet­i­tive­ness has a lot of catch­ing up to do

The Globe and Mail Metro (Ontario Edition) - - OPINION & ANALYSIS - A se­nior as­so­ciate re­searcher at the Mon­treal Eco­nomic In­sti­tute GER­MAIN BELZILE

We learned re­cently that Ottawa de­cided to back­track on the lim­its im­posed on cer­tain large green­house-gas (GHG) emit­ting com­pa­nies, al­low­ing them to emit more be­fore hav­ing to pay the car­bon tax. This is surely a step in the right di­rec­tion, as this tax rep­re­sents a steep cost for those Cana­dian com­pa­nies that are ex­posed to strong in­ter­na­tional com­pe­ti­tion from re­gions that don’t im­pose a price on car­bon. It’s in­creas­ingly clear that the dan­ger of pro­duc­tion and jobs flee­ing to these less-taxed havens is all too real.

This new sensitivity to eco­nomic re­al­i­ties must be ap­plauded, but it’s also a good op­por­tu­nity to re­call that Canada is stag­nat­ing, and even los­ing ground to its big­gest com­peti­tors. The rea­son: low Cana­dian pro­duc­tiv­ity, and slow pro­duc­tiv­ity growth, re­lated to our fis­cal and reg­u­la­tory en­vi­ron­ment.

In short, the per­cep­tion of Canada as a safe and prof­itable haven has been eroded. Costly gov­ern­men­tal green ini­tia­tives (such as the car­bon tax), the near im­pos­si­bil­ity of build­ing en­ergy in­fra­struc­ture, and the in­creas­ing reg­u­la­tory bur­den in Canada send the wrong mes­sage to in­vestors. In the mean­time, the United States, our big­gest com­peti­tor, is moving in the other di­rec­tion: mas­sive cor­po­rate in­come tax cut, a lighter reg­u­la­tory bur­den, and the shelv­ing of a pos­si­ble na­tional car­bon tax. Add to this the un­cer­tainty sur­round­ing the rene­go­ti­a­tion of the North Amer­i­can free-trade agree­ment and you get a pic­ture that is not very at­trac­tive for pri­vate risk tak­ers who are leav­ing Canada for other, more aus­pi­cious ju­ris­dic­tions. The sit­u­a­tion is par­tic­u­larly dis­as­trous in the re­source sec­tor, tra­di­tion­ally an area in which Canada has un­de­ni­able com­par­a­tive ad­van­tages.

This ob­ser­va­tion has im­por­tant reper­cus­sions for all Cana­di­ans. Ac­cord­ing to Sta­tis­tics Canada, be­tween the first quar­ter of 2008 (and so be­fore the 2008-09 re­ces­sion) and the first quar­ter of 2018, com­pa­nies’ real pri­vate in­vest­ment in­creased by just 2.6 per cent, de­spite a real 18.6-per-cent in­crease in GDP. And things have got­ten worse since 2014, a pe­riod of pros­per­ity. For­eign di­rect in­vest­ment in Canada (the sums in­vested by for­eign­ers in real pro­duc­tive as­sets in Canada) re­cently plum­meted to its low­est level in eight years, while Cana­di­ans are in­creas­ingly in­vest­ing abroad.

One ex­am­ple among oth­ers: In 2017 alone, sev­eral en­ergy projects, val­ued at $84-bil­lion, were aban­doned in Canada. And this fig­ure doesn’t in­clude the aban­don­ment and sub­se­quent na­tion­al­iza­tion of the Kin­der Morgan pipe­line.

One of the re­sults of this piti- ful in­vest­ment per­for­mance? Canada’s pro­duc­tiv­ity growth is ane­mic. It in­creased by only 48 per cent be­tween 1981 and 2015, ver­sus 67 per cent in the United States, 75 per cent in Swe­den, 64 per cent in Bel­gium, and 108 per cent in Ja­pan. Que­bec was even worse than Canada as a whole, with growth of just 39 per cent. This com­par­a­tively poor per­for­mance un­der­mines our eco­nomic growth, our gov­ern­ment rev­enues, and ul­ti­mately Cana­di­ans’ salaries and in­comes.

If we want to stop los­ing ground, we have to take the bull by the horns and re­view from top to bot­tom the pub­lic poli­cies that im­pact in­vest­ment in Canada. We ab­so­lutely must re­view busi­ness taxes and reg­u­la­tions, in or­der to sim­plify them and re­duce their cost for com­pa­nies. One par­tic­u­larly ef­fec­tive re­form op­tion would be to adopt a pro­por­tional tax rate of 10 per cent for all busi­nesses, in­stead of this rate be­ing re­served for SMEs and a higher rate of 15 per cent ap­ply­ing to larger com­pa­nies, as is the case at present.

In ad­di­tion, the fed­eral and pro­vin­cial gov­ern­ments should agree on max­i­mum time frames within which a project would re­ceive all nec­es­sary au­tho­riza­tions, so as to avoid ridicu­lous de­lays. And con­sul­ta­tions should be lim­ited to the com­mu­ni­ties di­rectly af­fected, not open to all or­ga­nized groups that wish to in­sin­u­ate them­selves into the de­bate. The na­tional car­bon tax, an­other cost for com­pa­nies, must also be re­con­sid­ered, so long as our big­gest trad­ing part­ner chooses not to fol­low this path.

Our pros­per­ity de­pends, now and in the fu­ture, on our abil­ity to at­tract in­vestors. We need to start by ad­mit­ting that when it comes to com­pet­i­tive­ness, Canada has quite a bit of catch­ing up to do.

New sensitivity to eco­nomic re­al­i­ties must be ap­plauded, but it’s also a good op­por­tu­nity to re­call that Canada is stag­nat­ing, and even los­ing ground to its big­gest com­peti­tors.

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