Ottawa must adopt bold policies to not simply bring the country back to pre-pandemic growth but aim for higher rates of economic growth and productivity and "break out of the two-percent trap," a new research paper co-authored by the Public Policy Forum and Scotiabank urges.
Actions that would jumpstart Canada's economy long-term include additional support for parents to help cover the steep cost of childcare and a time-limited grant for businesses to spur capital investments, says the report, produced in conjunction with Scotiabank Economics as part of a new partnership between the Bank and the independent think tank.
These two policies, if adopted by the federal government, would boost Canada's GDP significantly, writes Sean Speer, Scotiabank Fellow in Canadian Competitiveness at the Public Policy Forum, and Nikita Perevalov, the Bank's Director of Economic Forecasting.
"Strategic policy choices build enduring economic and industrial strength. It is important therefore that we purposefully pursue policies that promise more growth and productivity – and all the attendant social benefits that flow from that. That is ultimately the path out of the pandemic-induced downturn and the two-percent trap that was holding Canada back even prior to COVID-19," the report says.
Like many countries, COVID-19 has left a devastating toll on Canada's economy, with roughly 300,000 fewer Canadians working than prior to the pandemic. But Canada's economy has been stagnating for decades, in part due to headwinds such as an aging population and overhang from the global financial crisis of 2008-09, Speer and Perevalov write.
There is an opportunity today to pursue policies that go beyond reaching the less than 2% annual GDP growth rate Canada has seen for the past 20 years, but achieve higher and better growth for a sustained period, said Brian Porter, Scotiabank President and CEO, during the Bank's Annual General Meeting earlier this week.
In addition to an annual top up of $5,000 per child to the Canada Child Benefit, a significant increase to the Canada child tax credit and a time-limited matching grant for businesses' capital investments in machinery, equipment and intellectual property, the Bank is also calling for the elimination of interprovincial trade barriers.
"There is considerable evidence that these three policy recommendations would play an important role in strengthening our economy at this critical time," Porter said during his speech to shareholders. "These policies are common sense. They make good business sense. And they benefit all Canadians."
This research paper comes ahead of the federal government’s highly anticipated budget release on April 19, where Ottawa is expected to lay out its spending plans to support Canada’s economic recovery post COVID-19 and beyond.
“As Canadian policymakers develop their post-pandemic plans, they must recommit themselves to the imperatives of economic growth and productivity,” Speer and Perevalov write. “A focus on growth and productivity in tandem is crucial for raising GDP per capita and in turn improving living standards. There is also evidence that higher labour productivity leads to higher wages.”
Additional support for Canadians regarding child care, as proposed by Scotiabank economists Jean-François Perrault and Rebekah Young and outlined by Porter in a recent op-ed, aim to enable greater female participation in the labour force by lowering out-of-pocket child-care costs.
As well, a time-limited matching grant where Ottawa would provide a fraction of specific capital investments in machinery and intellectual property “would help to incentivize productivity-enhancing investments by Canadian firms and in so doing directly address the country’s low business investment and poor productivity record,” the report added.
“There are no silver bullets. It will take a wide range of policies to boost Canada’s growth and productivity. But there is certainly reason to think that individual policies can make difference on the margins – and that the margins add up. The point is to become more purposeful in our policy choices, to move from a hodge-podge of government programs to comprehensive industrial strategies.”
Over the coming months, the PPF Scotiabank fellowship will be carrying out significant work focused on helping to determine which pro-growth policies should be enacted. Topics and issues that will be covered include digital infrastructure, clean technology, immigration, and science and technology, the report said.
“The goal is to produce a comprehensive set of policy recommendations that can inform and shape an ambitious, pro-growth agenda for Canada.”