Five ways to boost Canada’s economy

Posted on January 3, 2012 in Debates

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report-on-business/commentary/barrie-mckenna
Published Sunday, Jan. 01, 2012 .   Barrie Mckenna

Lists are what people do at New Year’s – resolutions, best songs, top newsmakers, athletes of the year, and the like. So here’s one more: Five things Ottawa and the provinces can do to brighten Canada’s economic landscape in 2012.

1. Diversify U.S.-centric trade relations

Geographic proximity and a socio-economic kinship have made Canada and the U.S. natural partners, with integrated labour markets, supply chains and resources.

But that interdependence is eroding as a result of the high Canadian dollar and an increasingly thick post-9/11 border. In 2010, the U.S. accounted for 68 per cent of Canada’s two-way merchandise trade, and 73 per cent of exports. That’s down from 1999, when the U.S accounted for 81 per cent of overall trade and 86 per cent of exports.

The Obama administration’s politically motivated delay of the Keystone XL pipeline is a powerful reminder that diversified markets are vital. Canada has the resources the world wants, and it’s in the country’s interest to be positioned to deliver them to the widest possible array of customers.

The Harper government is doing the right thing by seeking entry into the Trans-Pacific Partnership – a free-trade deal linking Australia, New Zealand and the U.S. to major Asian countries. It should also restart stalled negotiations on a Canada-South Korea deal.

2. Keep Canada’s future retirees from sliding into poverty

Forget Freedom 55. Statistics Canada now says most Canadians will work until they’re at least 66, and many far longer.

Sometimes it’s because they want to. More typically, it’s because they don’t have adequate savings to maintain their pre-retirement standard of living.

The steady shift from defined-benefit pensions to more volatile defined-contribution plans is leaving Canadians highly vulnerable to the vagaries of financial markets.

And those are the lucky ones. Six out of 10 Canadians have no workplace pension at all, leaving them dependent on the Canada Pension Plan and Registered Retirement Savings Plans.

Tax-free savings accounts for individuals and Pooled Registered Pension Plans for small businesses don’t by themselves solve the problem.

More ambition is needed. Six leading Canadian pension experts, including former CPP chief actuary Bernard Dussault, recently urged an expansion of the Canada Pension Plan because it offers an “existing administrative structure and framework to improve retirement benefits for working Canadians at relatively low cost.”

3. Build critical infrastructure

Ottawa has been on an infrastructure binge since 2007, spending roughly $33-billion.

But it’s still not enough. From crumbling bridges and choked roads to inadequate public transit, the needs outstrip available funds. Canada also needs new bridges, ports and pipelines to get its resources to buyers in increasingly distant markets.

Ottawa recently reached out to the provinces and Canadian municipalities to renew its existing infrastructure spending arrangements, which are set to expire in 2014. It’s also committed to handing over at least $2-billion a year of federal gasoline tax revenue to municipalities.

Cities and provinces will have to find new funding sources.

4. Deregulate the relics of the pre-Internet economy

Canada has one of the most restrictive foreign ownership regimes in the world for telecommunications companies.

Foreigners are barred from controlling carriers, such as Bell, Telus or Rogers, and they’re limited in what they can invest.

These restrictions defy logic in the post-Internet era, when vast new areas of business can be done from anywhere in the world. Low-cost competitive telecom services are a must-have for Canadian companies and workers. Canadians are paying for diminished competition in the form of higher data, voice and TV rates.

5. Unleash the innovation potential of Canadian companies

Of all the challenges facing the Canadian economy, this could prove to be the most intractable.

Research and development is one of the keys to making the economy more productive and wealthier, and Canadian companies do far too little of it. In spite of generous tax incentives, Canada has been falling steadily behind other developed countries. Canada spends 1 per cent of GDP on business R&D, compared to 1.6 per cent among wealthy countries, and spending is now lower than in 2006.

Stephen Harper says he’ll embrace some of the recommendations of a recent federal R&D expert panel, which urged scaling back tax breaks in favour of more direct spending.

The key now will be to reinvest the savings more productively. Otherwise, the R&D gap between Canada and its main rivals will continue to grow.

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