Ottawa’s long-term economic initiatives under fire
Report cites lack of competitiveness
Globe and Mail
By Simon Tuck
OTTAWA—Ottawa has missed a “monumental” opportunity in recent years to boost the Canadian economy and standard of living by spending too much on social causes and not enough on long-term investments, a new report concludes.
The study, to be unveiled today by the Institute for Competitiveness & Prosperity, says federal policies that transfer money from rich provinces to poor are ineffective and bleeding the entire country.
Programs such as unemployment insurance and interprovincial equalization, which have largely failed to spur much economic growth in most have-not provinces, also hinder Canada’s economic competitiveness, which translates into reduced wealth and fewer jobs, the study says. “We’re giving them fish, not teaching them to fish,” said James Milway, executive director of the institute, which receives financial support from the Ontario government.
Ottawa’s talk about the need for Canada to become more competitive can be traced back to at least the free trade debate of the late-1980s, but Paul Martin’s Liberal government has given the issue special emphasis in recent months, sending signals that competitiveness will be the centrepiece of this fall’s economic statement and the budget early next year. That’s in sharp contrast to the $21.3-billion—or 15 per cent—hike in program spending in the last fiscal year.
“That’s exactly what we’re working on,” said John Embury, a spokesman for Finance Minister Ralph Goodale.
In a speech last month in Edmonton, Mr. Goodale said the government’s agenda for growth must include tax cuts as well as investments in areas such as infrastructure, education and innovation.
But the institute’s report says Ottawa has already missed a great opportunity. Between 1992 and 2002, governments at all levels in Canada decreased their spending on investment to 50 per cent from 55 per cent of consumption spending, the report says. The U.S., meanwhile, raised its investment spending to 55 per cent of consumption spending, from 52 per cent.
Investments are considered expenditures that are expected to create long-term benefits, such as tax cuts, debt repayment and spending on such things as education and transportation systems.
Consumption is spending on things that don’t usually lead directly to long-term economic benefits, such as social programs, and transfers to provinces.
The institute recommends:
Overhaul the way Ottawa transfers from rich to poor provinces by using the money to encourage investment in the have-not parts of the country, instead of consumption on social services.
Develop a long-term approach for dealing with greater-than-expected surpluses, instead of treating them as opportunities to spend more on consumption.
Overhaul the employment insurance program so that it acts more like insurance against the loss of work, instead of providing support for ineffective employers.
Douglas Porter, deputy chief economist with BMO Nesbitt Burns, said he agrees with the institute’s conclusions, particularly that some of the remedies for regional disparity contribute to the problem. Employment insurance may be “a little too much of a safety net” in that it’s generous enough that it may create disincentives for workers to relocate, he said.
