Liberal spending will have Limited economic impact.
Impact will be limited
OTTAWA • Hundreds of billions of dollars in Liberal spending will likely have a limited effect on economic growth as Ottawa has favoured a piecemeal industrial strategy that fails to build the foundation for long-term expansion, warn business representatives and economists.
“We will have spent $1 trillion since 2019 and it’s not clear that we’ll be in a better position on the economic front,” said Robert Asselin, a vice-president at the Business Council of Canada and former Liberal advisor.
Prime Minister Justin Trudeau’s government has repeatedly voiced plans to “build back better” coming out of the COVID-19 pandemic, largely through increased spending on a raft of social, environmental, and industry programs.
During the five years ending in 2024, Ottawa is expected to add $1 trillion to the federal debt, well higher than the $685 billion that had been accumulated through its entire history until 2019.
A large chunk of that spending was necessary as a way to aide companies and people during pandemic lockdowns. But, several experts told the National Post, too much of it is scattershot, spread lightly across every conceivable industry or social cause, seemingly with the ultimate goal of buttressing Liberal talking points.
Asselin, as well as several other prominent economists and political advisers, fear that the focus of the Trudeau government has tilted too far toward redistribution rather than carving out detailed plans for longer-term economic growth.
economists and other observers have for years warned that Canadian leaders have become far too complacent about the general state of the national economy. Business investment levels have waned since 2015, productivity has sagged, and an aging Canadian population continues to put more strain on the public purse. Canadian firms have become dependent on small bursts of government subsidies, while at the same time outdated regulatory regimes hinder private investments. Loose intellectual property rules allow foreign companies to easily acquire Canadian innovations, moving jobs and tax revenues overseas.
Many of the solutions to the problem need not come at a high cost to the taxpayer, Asselin said.
Subsidies for industry, either in the form of tax breaks or direct spending, are necessary in an increasingly competitive global economy, he said, but government supports need to be geared toward specific targets, perhaps a handful of “priority” industries, in order to give Canadian entrepreneurs and executives a meaningful edge.
Asselin questions programs like Ottawa’s $2.4-billion Strategic Innovation Fund for lacking specific guidelines that would funnel money into a select few high-potential sectors. The Liberal’s $950-million “superclusters” program, meanwhile, has been successful in generating collaboration between industries, researchers, and government, but is likely too small to help Canadians firm scale up in a significant way, he said.
“The idea was probably a good one,” Asselin said. “But at the end you’ve given a million here, a million there, and after five years you don’t have a lot of scale.
“It’s easy to write cheques, but it’s not easy to think correctly about a long-term economic strategy.”
Worries about public spending are particularly acute as Ottawa prepares to run a $380-billion deficit in 2021, not including up to another $100 billion in additional stimulus.
William robson, CEO of the C.d. Howe Institute, said he is concerned that too steep of an influx in federal cash could effectively displace business investment, in turn slowing the recovery. Ottawa late last year said it would spend the $100 billion in fiscal stimulus over the next three years, but declined to detail where specifically the money would be spent.
That spending will fill a gap in the short term, robson said, but current weakness in non-residential investments — including everything from intellectual property to machinery and equipment — will continue to persist.
Without meaningful policy changes, Canada will continue to be the team still using “eaton’s catalogues for shin pads” at the international hockey tournament, he said, unequal to the task of attracting capital and innovating at the pace of foreign competitors.
Investment levels in Canada have not exactly plummeted, but they’ve tapered off since a commodity market crash in 2015 dried up new investments in the oil and gas sector.
robson said those investments will need to be filled in elsewhere, but it remains unclear where it will come from. An increasingly sclerotic regulatory system and burdensome administrative requirements have cooled investors on Canada as an investment destination.
“What concerns me is that we don’t seem to be an attractive place to install new capital,” he said.
uncertainty looms over how Ottawa will allocate additional stimulus funds, as ministers signal an intention to spend money on a wide range of industries. recent announcements by the Liberal government to stimulate the economy through infrastructure spending simply repackaged existing funds for “shovel-ready” projects.
Ottawa’s fall fiscal update simply says that the $100 billion will go toward “growing a green economy, investing in infrastructure that supports our communities, workers and flow of goods, and supporting inclusive participation in the workforce.” The “Build Back Better” plan effectively reiterates every Liberal commitment made before the pandemic, from a new incentive for first-time buyers to a promise to lift boil water advisories on First Nations reserves.
Much of the taxpayer money already allocated, in the form of the Canada emergency response Benefit (Cerb), for example, has gone into personal bank accounts. Canadians who remained employed during the pandemic have added to their savings in record amounts — a pile of cash that will provide a significant boost in the coming recovery, but won’t spur longer-term productivity gains, he said.
“I don’t like this overall fiscal framework,” robson said. “It’s very tilted toward consumption and the capital investment that we need in order to be productive and compete is just not happening at anything like the rate that we need.”
economists are widely in agreement that some degree of fiscal firepower will be needed from Ottawa to jolt the economy into recovery. But that will need to be coupled with a range of other policies, most of which would come at a relatively low cost to taxpayers.
In a report in October, the Business Council of Canada laid out recommendations that would assist with economic recovery, most of which business representatives have been urging for years. First was modernizing Canada’s regulatory system in order to make it more competitive with other countries. Other recommendations near the top of the list included simplifying Canada’s tax regime, developing a natural resource and climate strategy, and prioritizing certain “nation building” infrastructure projects.
The Canadian Chamber of Commerce outlined the 130,000 federal and provincial regulations in a 2018 report that are forced upon Canadian businesses, saying they amount to a “mix of complex, overlapping rules that is costing Canada’s economy.”
Suggestions for streamlining regulations include better harmonizing interprovincial trade or drawing harder lines around intellectual property rules. Groups including the Council of Canadian of Innovators (CCI) have long warned that Ottawa has been funnelling money into innovative startups even as Canadian IP flows to foreign companies, effectively undermining Canada’s ability to create jobs.
“They’re deploying capital, but without really building a national structure in order to capture the wealth that’s coming from it,” said Ben Bergen, executive director of CCI.
On Jan. 12, the same day that Canada’s industry minster took over his new role, a report by the Globe and Mail found that Blackberry, the former Canadian tech darling, had sold 90 key patents to China’s Huawei Technologies Co. It was a transaction that many industry insiders saw as a telling example of Canadian IP leakage. Without a larger framework to protect Canadian ideas, Bergen said, foreign tech giants will continue to reap the majority of tax revenues and jobs from new innovations.
“This really will be mission critical for economic prosperity,” he said. “So we’ve kind of got to kick this into high gear. And especially if the government is going to be spending hundreds of billions of dollars on the economic recovery.”
The mandate letter for newly-appointed industry minister François-philippe Champagne only briefly mentions protecting IP, included among a long list of disparate goals.
Champagne is tasked with achieving reconciliation with First Nations, helping manufacturers develop personal protective equipment (PPE), introducing a new clean tech fund, increasing gender equality at companies, and working with the fisheries minister to grow Canada’s “ocean economy.” One task vaguely calls on the minister to “make zero-emissions vehicles more affordable”; another to “consider public policies through an intersectional lens.” yet another involves working with other ministers in “combating hate groups and online hate and harassment.”
Business groups have for years sought to convince Ottawa to focus on the more foundational (and perhaps blander) aspects of governance in order to spur economic growth. But that seems a long way off in a world increasingly consumed with immediate concerns, and lacking the patience to wait on the sorts of longer-term fixes.
“The great challenge for all governments is balancing the imponderable of both the short term and the long term,” said John Stackhouse, a vice-president at RBC.
“I think they’re very aware of the challenge, and consumed, understandably, with the immediate crisis,” he said.
All countries have been consumed by immediate concerns, particularly during the pandemic, said the Business Council’s Asselin. But he said there are some examples of foreign governments assembling longer-term frameworks that zero in on specific industries and set economic goals far into the future. Germany has outlined plans in its Industrial Strategy 2030 and Australia has put forward a Jobmaker plan focused on high-level economic goals like energy security and cutting red tape for business.
But the current Liberal government has been especially fixated on saying things that might sound desirable to voters, Asselin said. New grant programs or industry funds are announced at regular intervals while the most fundamental services Ottawa is meant to provide remain decades in the past. Liberal ministers often seek to project a certain flavour of virtuousness, but are much less likely to speak frankly about the areas in which governments could do better.
“This ‘governance by narratives’ has become the modus operandi, and that’s a problem,” Asselin said.
“Politicians are not rewarded when they think about the long term. It’s almost like a daily war, and that’s good enough for everyone.”