Canadians need sound federal economic stewardship to thrive in the demographically challenged years ahead.
By William Robson
Whatever the configuration of the new federal Parliament Canadians will elect on Oct. 19, the incoming government will want to lay out its economic and fiscal strategies early. The following memo could help.
Memo
To The incoming prime minister
Re The new federal government’s economic framework
Congratulations on a successful election and best wishes as your government takes office. A key task is to adjust from the partisan imperatives of the campaign to the enduring economic challenges and opportunities, and the long-term focus Canadians need to prosper in the years ahead. Sustainable fiscal management, developing and deploying human capital, and industrial policy driven by openness and competition can help your government manage those forces to Canadians’ advantage.
First, the imperative for a sustainable fiscal track. Canada is undergoing profound demographic change. For two generations, rapid growth in the workforce and in household spending propelled the economy forward. From now on, Canadians will rely more on capital investments that give them better tools to work with and enhance their earnings. Those investments require low and stable tax rates, and abundant saving — which Ottawa can promote through spending control and balanced budgets.
The high profile of the debate over federal deficits during the election campaign showed afresh that commitment to budget balance helps contain pressure for unaffordable spending. Your government can invest in needed infrastructure without excessive borrowing, simply by prioritizing national projects that Ottawa is uniquely suited to undertake. The provinces, territories and cities must also hear that large ad hoc increases in federal transfers to them are not in the cards — they must not let hopes of federal bailouts divert them from prudent financial management.
Keeping the federal government’s interest payments low even as interest rates rise, moreover, will give your government room to deal with such major issues as the huge unfunded obligations in federal employee pension and health plans — including your own! Giving the Canadian Forces the people and equipment they need will also cost money. As will reforms to give aboriginal students the decent educations too many now lack.
First Nations education is but one among many human capital-related imperatives for your government. The federal government can spur better quality of elementary and secondary education across the country by supporting international comparisons of student achievement. It can also facilitate post-secondary study by Canadians abroad and by foreign students in Canada — and can do more to encourage successful foreign students to become Canadian citizens.
In addition to ensuring that Canadian workers enjoy low and stable personal tax rates, your government can encourage workforce participation by expanding the Working Income Tax Benefit. It can help Canadians match their skills to good jobs by making the Employment Insurance program more regionally neutral and enhancing its Job Matching Service. It can ensure that taxes on work and saving do not push older Canadians into premature retirement.
This focus on human capital has a central place in the third theme: economic development driven by openness. Your government must address specific concerns about temporary foreign workers without impeding travel and work by foreigners in Canada and by Canadians abroad — travel and work that’s critical to a modern economy. The economic and social success of Canadian immigrants is a key national asset: reforms to reinforce immigrant success in the labour market will attract talent and reinforce the perception that immigration is a positive force in Canadian life.
Openness should also be a centrepiece of your government’s industrial strategy. Nothing spurs innovation and efficiency like access to opportunities and exposure to competition. On the international front, completion of trade agreements with Europe and Pacific partners will create access and competition, orienting more Canadian businesses away from protection and reliance on governments, and toward their suppliers, competitors and customers. Even better is liberalization that removes domestic barriers to innovation. Ending production quotas and sales restrictions in supply management, for example, would transform Canada’s dairy industry from a protected backwater to a world-beater.
Competition and freedom to innovate should also inspire policies on the domestic front. In the past, cutting the red tape that constrained telecommunication, air and rail transportation benefited consumers and created world-class companies. More can be done in those industries, and in many others — food and beverages, energy and in the growing number of professions where licensing hampers start-ups and fragments Canada’s internal market.
This framework is directional. Nothing in it unduly constrains your ability to reflect the preferences of your caucus and constituents, or fulfill specific campaign pledges. The directions, however, are vital. They reflect imperatives that existed before the election campaign and will exist throughout your government’s term of office. Canadians need sound federal economic stewardship to thrive in the demographically challenged years ahead. Sustainable fiscal management, effective human-capital development and openness to competition and innovation can help you deliver what Canadians need.
Published in the National Post on September 1, 2015
William Robson is president and CEO of the C.D. Howe Institute.
