Budget needs to free us from `2 per cent trap'

Monday's federal budget has been a long time in the making. It will have been 762 days since the last one when Finance Minister Chrystia Freeland stands up in Parliament to deliver her maiden budget speech. There are several big storylines that will undoubtedly shape her remarks.

The biggest, of course, is the ongoing pandemic and the recent spike in caseloads across several provinces due to the rapid spread of new variants. Hopes that the budget would be tabled at a hinge point between the tapering off of the virus and the beginning of the post-pandemic recovery have been dashed. The Trudeau government won't have much scope to look far beyond the immediacy of the crisis or risk appearing indifferent and opportunistic. This will necessarily be a COVID-19 budget, not a “great reset” budget.

Another storyline is the minority parliament and the uncertainty of whether Minister Freeland's budget will be able to secure the confidence of the House and stave off a spring election. It's no slam dunk. The New Democratic Party is apparently well financed and ready to double its campaign spending relative to the 2019 campaign. There's a small yet not implausible chance that the budget defers on pharmacare and that's enough to cause Jagmeet Singh to vote against it and take his chances with the voters.

Then there's the childcare question. Expectations are sky high that the Trudeau government will finally deliver on a universal, national childcare framework nearly 30 years since Liberal party first promised it. The story of the “feminist” prime minister and the first female finance minister fulfilling this long-standing progressive policy aspiration sort of writes itself after all.

The challenge, though, is that no one seems to fully agree on what universal and national means. How do we define “quality” childcare? Does it exclude private options? Is it basically starting full-day junior kindergarten even earlier? And can we reasonably expect the provinces to simply sign on to the Trudeau government's plan?

One could go on and on with other probable storylines for Monday's budget. (The unprecedentedly-large deficit and the prospect of $100 billion in new “stimulus” spending is a column unto itself.) We're living in a target-rich environment these days. There's nothing like a once-in-a-lifetime pandemic to shake things up.

But one storyline that will hopefully not go neglected in the budget is the need to prioritize economic growth and productivity. This isn't just a short-term, pandemic-related problem. Canada's economy has been moving slowly for the better part of two decades — in fact, economic growth has averaged less than two per cent annually since 2000. We seem stuck in what some economists describe as “secular stagnation” or what the rest of us might call the “two-per-cent trap.”

Various factors have contributed to this sustained period of slow growth. Some, such as aging demographics, are more difficult for us to influence in the short term. But others, such as low business investment and poor productivity, are more firmly in our control. There is, as the former deputy governor of the Bank of Canada, Carolyn Wilkins, has previously put it: “a whole galaxy of ways to boost the trend line for growth.”

Let me give you two concrete examples: if we could increase business investment as a share of GDP by one percentage point from 12 per cent to 13 per cent to match U.S. levels, it would add 0.3 percentage points to Canada's annual economic growth. If we similarly increased pre-pandemic female labour force participation by one percentage point, it would add as much as 0.7 per cent to Canada's economic output.

These examples are powerful precisely because they're so small. It doesn't take much in order to boost economic growth on the margins — and marginal differences matter over time. As Pulitzer Prize-winning columnist George F. Will has written: “three per cent

IT DOESN'T TAKE MUCH IN ORDER TO BOOST ECONOMIC GROWTH ON THE MARGINS.

growth is not one per cent better than two per cent growth, it is 50 per cent better.”

It shouldn't be enough therefore to “get our economy back on track” as Prime Minister Trudeau has previously committed. The ambition must be much higher. The government's overriding priority should be to break out of Canada's two per cent trap.

The list of possible actions — including (but hardly limited to): more generous childcare benefits, incentives for business investment and an increase in public spending on science — is too long to list. The key point here is that neither policy-makers nor the Canadian public should succumb to fatalism about the forces shaping our sustained economic sluggishness. We have greater agency over our economic performance than we often realize.

We're not merely actors in an unfolding storyline where the script has been preordained by fate or providence. We're authors of the future in which our choices — good or bad — will ultimately dictate the plot.

Monday's budget, which has been described as “one of the most consequential budgets in Canadian history,” will be a key juncture in our collective story. Let's hope that Minister Freeland chooses wisely.