Parties Neglect Productivity-boosting Policies

The economic platforms of neither the Liberals nor the Conservatives will do anything to stop the decline in Canada's standard of living against the United States over the next few years, an economist said yesterday.

Dale Orr, managing director of Global Insight, said both party platforms are devoid of the tax cutting or spending strategies that would help Canada close the productivity gap with the United States -- the key determinant of living standards.

"We can reduce the productivity gap with the U.S., but we're not going to do that with either of these programs," Mr. Orr said yesterday after a teleconference on the Canadian economy.

After rising from 1998 to 2001, Canada's labour productivity, or ross domestic product per hour worked, has slumped against U.S. levels as Canada added workers to increase economic growth while the U.S. relied almost exclusively on technology.

Mr. Orr figures Canadian productivity dropped from 84% of U.S. levels in 2001 to 80% in 2004, where he expects it to hover into 2007. Meanwhile, overall economic growth is likely to lag the United States.

As a result, GDP per person, one measure of living standards, is likely to stay about 85% of U.S. levels, down from 87% in 2002.

But neither Paul Martin nor Stephen Harper have presented much in the way of fiscal policy to close the productivity gap and make the economy really take off, Mr. Orr said.

Productivity enhancing spending measures would include increases to infrastructure, education and training. Tax measures would include cuts to capital, investment, corporate and payroll taxes as well as marginal personal income taxes.

On the spending side, both parties are planning to spend billions more on health care, Mr. Orr said.

"There is hardly anything you can spend money on that can do less for productivity," Mr. Orr said. A disproportionate amount of health spending goes to people over age 65.

Of the $28-billion the Liberals plan in new spending initiatives over the next five years, roughly $7-billion, or 25%, might be seen as productivity enhancing, he said. This would include money from gas taxes that would flow to municipalities for infrastructure spending and money destined for rural and industrial development -- if it actually comes through.

Meanwhile, the Conservatives have penciled in $58-billion in new spending and tax measures over five years, Mr. Orr said.

It is true the party is planning some $21.9-billion in income tax cuts but only half, or about $11-billion, would be productivity enhancing, Mr. Orr said. These would include raising tax brackets and eliminating the middle-income tax bracket.

The other half of the Conservative income tax savings would come from expanding tax credits and deductions, which might be good for income redistribution but does little for productivity.

An altogether more effective way to enhance productivity would be to drop marginal tax rates or the rate of tax charged on the last dollar earned. A high marginal rate tends to dissuade people from working extra hours or aiming for higher-paying jobs.

The Conservatives will reduce employment insurance contributions, which Mr. Orr said was "bang on" as a productivity enhancing measure. Some $5-billion of their corporate tax initiatives are also likely to boost productivity, as will $3.5-billion earmarked for infrastructure spending.

In total, only about $20-billion, or one-third of the $58-billion in new Conservative economic initiatives, would boost productivity, Mr. Orr said.

"Shame on both of them," Mr. Orr said. "Neither of them will help the Canadian economy much."

© National Post 2004

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The Frontier Centre for Public Policy

is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."

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Feedback:

• RE: Artificially Cheap Hydro Power — June 7, 2012
  

  What an interesting read. Things really do have to change. Comment from VectorV

• RE: Artificially Cheap Hydro Power — June 7, 2012
  

  There is no place or time in human existence when welfare, in and of it self, was ever an incentive to become self sufficient.  Other forces are required for self sufficiency.

  Equalization is a crutch and enabler to be less productive.  It needs to be phased out over a decade to assist the welfare recipients to grow and prosper on their own. Even McGuinty in Ontario, my Province, whines they want their fair share of the socialist pot.

  If Provinces need help after a decade it should be in the form of repayable loans at market prices. If after that they still cannot do it smaller jurisdictions should be amalgamated. Comment from MikeMurphy

• RE: Artificially Cheap Hydro Power — June 7, 2012
  

  What has this comment got to do with the content of the article?  Properly presented factual information is no less valuable when sponsored by a think tank with a view point. Bias is an inherent part of everything that we consume intellectually.   It is up to the recipient to determine if the information is credible. What you are doing is not much different than someone looking to an author's religion or colour to help determine the veracity of their comments.  Comment from billyjimjr

• RE: Artificially Cheap Hydro Power — June 7, 2012
  

  The Frontier Centre for Public Policy's 2010 annual report states that 78% of its operating capital came from Foundations. The individual Foundations and the amounts of their donations aren't listed; /files/1/AR.... In keeping with the Harper Government's new policy of monitoring charitable organizations to ensure they aren't overly influenced by foreigners, you should list the individual Foundations, their country of origin, and the amounts donated. Comment from Ed_BC

   

  They can write op-ed pieces no matter who does the funding. They aren't looking for a seat at the environment-review table or the government-funding banquet.

  If that's all you have by way of criticism, maybe they are onto something? Comment from Thylacine in response to Ed_BC

• RE: Artificially Cheap Hydro Power — June 7, 2012
  

  Thank -you Mr Holle, these things you point out are nothing new to a lot of Canadians yet are outright denied by Quebec and Atlantic Canadians. I don't know if we have anyone with the parts to stand up and fix this situation created by liberals for buying votes. We in the west sent Harper down there to fix crap like this but it doesn't look like he ever will. Is there something in the water in Ottawa that turns good people into complete liberal idiots? Comment from anon353467002

• RE: Artificially Cheap Hydro Power — June 7, 2012
  

  I rather expect the riots in Montreal will be considered insignificant if the federal government finally decides to make the formula honest and workable. The gimme mentality will result in violence, mark my words. Comment from robins111

• RE: Artificially Cheap Hydro Power — June 7, 2012
  

  Perhaps, but Ontario clearly can't afford to continue being extorted, and Alberta is not big enough to replace it (despite their large egos). Even if Alberta could support the entire country, they would refuse - they are not selflessly generous like Ontarioans nor do they care about national unity. The good news is there are other ways besides wholesale bribery to co-opt complainers and to hold a country together. We just need to start looking at them. Comment from zerozero

• RE: Artificially Cheap Hydro Power — June 7, 2012
  

  But if the feds offer Quebec et al, to keep the GST in return to ending equalization payment, the provinces will go for it. Quebec thinks the RoC is screwing them, and they also know they are smarter than the rest of us, so they will handle the revenue better than Ottawa would. I think it would be hilarious.

  It also might indirectly save Canada from breaking up. Today's animosity to equalization in the country, is burgeoning. Comment from northern vigor

• RE: Artificially Cheap Hydro Power — June 7, 2012
  

  In a well-meaning gesture towards national unity and equality, the good people and generous industries of Ontario have allowed themselves to be robbed blind by this Equalization Program, since its inception. Money which should have been invested in Ontario was instead sent to Ottawa where it was handed over to other provinces, so the people there would not have to work hard to create the same standard of living as Ontario, nor live within their means, nor move to find opportunity. In return, the rest of the country whines, complains, and sends hatred and ill-will to Ontario, especially its capital, Toronto, which is where most of the wealth in the country has traditionally been generated, then taxed away and sent to these ingrates. It has been a grand vote-buying scheme which has gone wrong. Now that Ontario can no longer afford to sacrifice itself in order to buy off the rest of the country, it is the target of ridicule and even more hatred, not sympathy. Yet due to the institutionalized insanity of the program, it continues to pay into it even though now considered a 'have-not', it receives a token amount back. Time for the program to end. Comment from zerozero

• RE: Artificially Cheap Hydro Power — June 7, 2012
  

  Most of the money Ontario sent to Ottawa went to Quebec, as is the case today, most come from the west and most goes to Quebec. So now if one can take the polls as correct Ontario is about to join Quebec and put this clown Mulcair in power, what do you think will happen then, a Quebec party running Canada. Ontario had better hold on to your wallet. Alberta will be going its own way, we are done paying for those ungrateful, entitled Frenchman. Comment from anon353467002

• RE: Artificially Cheap Hydro Power — June 7, 2012
  

  Ontario is still paying billions of dollars which it can't afford into that stupid program. Once people understand that, the program will have to meet its death or at least undergo drastic reform. This cannot continue. Ontario is now broke. It needs to keep its money at home.

  I am hoping the Liberals will stop playing games, clean themselves up, develop a strategy, and mount a comeback. Or if not, I hope a new centrist party less slimy and complacent than the Liberals will appear to take the Liberals' place. Your Conservatives are mostly just Reform yahoos and thinly-disguised English-speaking separatists. But I do share some of your concern towards the NDP. Comment from zerozero