Low productivity equals lost taxes. Get it?
Globe and Mail
By Neil Reynolds
OTTAWA - It’s the single most disturbing observation that the Institute for Competitiveness and Prosperity makes—disturbing because it is so precise. “Public interest in questions of competitiveness and prosperity,” the institute says in its 2007 report, “is hard to detect.” Frankly, no one gives a damn. Canada can rouse itself from complacency to resist service fees at automated banking machines. Yet it can’t feign a response to the country’s devastating decline—compared, across 25 years or more, with the United States—in living standards.
Established as an independent research organization by the Ontario government, the institute measures and monitors Ontario’s economic progress against other provinces and against the U.S. (Its chairman is Roger Martin, dean of the Rotman School of Management at the University of Toronto.) The institute has for years tracked Canada’s growing “prosperity gap” with the U.S.—from $3,000 a year per Canadian household in 1981 to $9,200 a year per household now. With another decade of indifference, the institute has calculated, the prosperity gap will almost double—to more than $17,000 per Canadian household.
Canadians may well love their country deeply—but they are only human. When Canada’s prosperity gap reaches a certain level, Canadians will begin to cross the U.S. border in numbers that rival Mexicans. Canadians have migrated south in large numbers at various times of economic stress throughout our brief history. One can safely predict that, without radical policy reform in this country, they will do so again.
U.S. per capita gross domestic product is now $51,600. Canadian per capita GDP is now $42,400.
It’s hard to say how much greater this divergence must become to set off a southward migration. But Canada’s productivity performance in the past quarter-century is an ominous indicator that we’re getting closer. Expressed as a compound average growth rate, Canadian labour productivity has advanced by 1.3 per cent a year since 1981. Among 19 countries with populations greater than 10 million, Canada stands at the very bottom—with the exception of Mexico, whose performance is minus 0.6 per cent a year. The Institute for Competitiveness and Prosperity describes Canada as “the real laggard.” Among the countries that beat Canada are Poland, Turkey, Hungary, Britain, Portugal, Japan, Italy, Greece, Spain—and, believe it or not, France.
Canadians appear remarkably unperturbed by the fact that they are growing relatively poorer. Perversely, they appear proud of it, as though they can best articulate their difference from Americans by impoverishing themselves.
Yet the “prosperity gap” doesn’t hurt only the people of Canada. It hurts government, too—which is normally sufficient reason to get the attention of the country’s political elites. Here, succinctly, the institute explains why governments—whether left or right—should pay serious attention: tax dollars.
“Closing the prosperity gap—or increasing our GDP per capita by $9,200 to match the U.S. level—would result in an increase of $11,900 in personal disposable income for the average Canadian household,” the institute says. “In addition, closing the prosperity gap would generate an additional $108-billion a year in revenues for the federal, provincial and municipal governments.”
This is astonishing. Forget our lost incomes. Think, for a moment, only of lost government revenue. We think that a $10-billion budgetary surplus is significant? Try $100-billion. Try $108-billion. Count present surpluses along with it and try $120-billion a year. Why does the Bloc Québécois, so keen for more federal tax-dollar transfers to Quebec, not care about this revenue gap? Why does the New Democratic Party, so insistent on increased federal tax spending as a matter of principle, not care? Ideological differences can legitimately separate us on the spending of prosperity; let it not divide us on the earning of it.
The competitiveness institute’s 2007 report calls for a number of kindred policy changes that it says will reverse Canada’s prosperity gap. Canada works hard, it observes—but not smart. In an assessment of 24 member countries of the Organization of Economic Co-operation and Development, the institute determined that Canada has “the least smart” tax regime on business investment of them all. Yes, the U.S. tax rates on investment are among the highest in the world. But the U.S. compensates in other ways, producing “an environment that is perhaps the most conducive to investment in the world.” Canada, in contrast, has the high tax rates—but not the conducive environment.
