How economic growth can help the middle class

Jock Finlayson

“Building an economy that works for the middle class” is the mantra of Justin Trudeau’s government.

But ‘middle class’ is never defined, making it difficult to know if progress is being made on what the government calls its most important objective.

On at least some measures, the middle class in Canada looks to be doing reasonably well.

From 2010 to 2014, the total pretax income of the typical family — defined, statistically, as the “median” family consisting of two or more related persons — rose from $80,900 to $87,000 in constant 2014 dollars. This is an increase (after inflation) of 7.5 per cent over four years — a decent gain.

Against the backdrop of a chronically weak global economy and a Canadian economy struggling to eke out any growth, it won’t be easy to increase median real incomes faster than during the 2010 to 2014 period.

Nonetheless, the prime minister and his colleagues want to try. In doing so, they can tap into the expertise of the Advisory Council on Economic Growth appointed by Finance Minister Bill Morneau earlier this year. Its mandate is to come up with “bold and innovative ideas that will lead to a higher standard of living for the middle class and those working hard to join it.”

To be effective, such ideas will need to boost the growth potential of the Canadian economy over the medium-term and beyond.

What would establish conditions favouring stronger economic growth and a better future for the middle class? The advisory council will no doubt produce an extensive list of suggestions.

In the meantime, there are several areas where smart government policy can help.

One obvious priority is to accelerate investments in infrastructure, including technologies that facilitate the efficient use of scarce infrastructure assets. With record low interest rates, there has never been a better time to invest in infrastructure — especially in projects geared toward improving productivity and raising the economy’s growth potential.

Budget 2016 took some steps in this direction, but there is more to be done. The challenge extends well beyond the traditional public sector domain. In pursuing its infrastructure agenda, the federal government should seek to leverage private sector capital pools and rely more on user charges and innovative financing arrangements to manage costs and risks to taxpayers.

It should also look to expedite the tens of billions of dollars of infrastructure investments being proposed by private-sector companies and consortia across the country.

Second, it is critical to ensure Canadian goods and services have access to global markets. This calls for an outward-looking, proactive approach to trade and investment. If the proposed Trans-Pacific Partnership (TPP) and the comprehensive trade and economic agreement with the European Union remain stalled, Canada must pursue bilateral discussions with trading partners in Asia and Europe. We must also press on with efforts to strengthen the North American partnership and modernize the Canada-U.S. border to streamline the movement of lowrisk goods and travellers.

Third, Ottawa has to start paying more attention to the global competitiveness of Canada’s natural resource industries — industries that directly support hundreds of thousands of middle class families and supply more than half the country’s merchandise exports. To thrive and grow, our natural resource industries need excellent rail and road networks, efficient ports and expanded energy infrastructure that allows Canadian oil and gas to reach offshore markets where the demand for energy continues to expand.

And while the Trudeau government has pledged to overhaul the key regulatory regimes affecting natural resource projects and related infrastructure development, it is vital that this work not result in even more cumbersome and delay-prone review and approval processes. It’s an area where Canada is already saddled with a poor reputation in the eyes of global capital markets and the investment community.

Finally, Ottawa can better align the tax system to support economic growth and the creation of high-paying jobs. This means keeping general business tax rates low, ensuring tax policy encourages the speedy diffusion of advanced technologies across the business sector, paring back the boutique tax credits and incentives that have proliferated since the 1990s and modifying tax rules and administrative procedures to account for the shift to the digital economy.

Following these steps will help create an economy that works for the middle class — and everyone else.