International Monetary Fund paints a rosy picture of Canada — maybe the country isn’t broken after all

Posted on June 17, 2024 in Debates

Source: — Authors: – Business/Opinion
June 15, 2024.   By David Olive, Star Business Columnist

Past reports by the Washington-based agency have faulted Canada for spendthrift fiscal policy and poor debt management, among other sins. Not this time, David Olive writes.

Contrary to received wisdom in some quarters, Canada is not “broken.”

We have that from an authoritative source, the International Monetary Fund (IMF), in its latest report on Canada published Tuesday.

The IMF periodically issues report cards of its member countries with suggestions for improvement.

Past reports by the Washington-based agency have faulted Canada for spendthrift fiscal policy and poor debt management, among other sins.

Not this time.

“The Canadian economy appears to have achieved a soft landing, staying out of recession even as inflation has fallen substantially,” the report says.

“Real GDP growth is poised to recover,” driven by factors including “continued (even if slowing) immigration,” the IMF says.

Fears around mortgage debt are a bit overstated. “Mortgage resets in the coming years will exert a headwind, (but) this should be limited by households’ relatively healthy balance sheets, increased home equity, and a benign unemployment forecast,” says the report.

And “Canada’s fiscal track record continues to compare favourably to many other advanced economies.”

Canada “was quick to consolidate (debt) after the pandemic, has maintained relatively low deficits since then, and is targeting further deficit reduction.”

That might not sound like the Canada we live in, which has been committing tens of billions of dollars to new social benefits including child care, pharmacare and denticare.

Canadian governments are funding one of the biggest homebuilding campaigns in history.

We’re also spending heavily to reinvent the auto sector around electric vehicles (EV), and to expand a Trans Mountain pipeline that gets Alberta oil to world markets for the first time.

And Ottawa and Ontario are subsidizing a new pharmaceutical mega-factory in the GTA that will restore our ability to make our own pandemic vaccines rather than rely on imports as we did last time.

But it seems we can afford those things, to go by the IMF’s projections of a healthy national balance sheet to the end of the decade.

The IMF backs up its assessment with data.

While U.S. debt and deficits are expected to continue rising in coming years, the IMF forecasts a gradual decline of 1.6 per cent in Canadian government spending between now and 2029, and a 9.2 per cent drop in the gross national debt in that time.

The IMF endorses two controversial Canadian policies. The maligned carbon tax is necessary, it says, if Canada is to achieve its goal of cutting its 2005 carbon emissions by as much as 45 per cent by 2030.

The IMF also lauds the increase in the capital gains tax inclusion rate, introduced in the latest federal budget, as progress in achieving greater tax fairness. The IMF says the tax reform will not, noisy critics to the contrary, diminish business investment or slow productivity growth.

The IMF says Ottawa should seek additional revenue sources to reduce its reliance on deficit financing.

It suggests raising the federal portion of the GST, as this space earlier advocated in also calling for a higher OAS eligibility age of 67.

In an earlier report, the IMF estimated that removing interprovincial trade barriers would boost the Canadian economy by about $80 billion a year.

The failure to fix that problem is paradoxical. Canada has free-trade agreements with the U.S., Mexico, the European Union and 11 Asia-Pacific economies including Japan and Australia, but not between Ontario and Quebec.

The IMF urges Canada to resume provision of social housing, a field Ottawa abandoned in the 1990s with disastrous consequences.

Housing affordability is the biggest Canadian problem the IMF highlights, especially in the rental market. “Vacancy rates have fallen from their historical average of three per cent to around one per cent, while rents have surged.”

So, Canada doesn’t earn straight “A”s from the IMF.

The IMF counsels even greater restraint in government spending.

That restraint is required “both to support the Bank of Canada’s efforts to bring inflation back to target and to rebuild buffers appropriately used during the pandemic.”

And our fight against climate change requires greater co-ordination of federal and provincial policies, the IMF says, to accelerate carbon abatement and with more cost-effective methods.

“A holistic review of the system should be considered,” says the IMF, “along with the creation of a single body to advise the government on climate policy.”

True enough. Our current hodgepodge of GHG mitigation strategies have Ottawa and Alberta mired in disputes, and Manitoba and Quebec unable to export their clean hydropower to an Ontario where power demand is escalating.

The same holistic remedy could be applied to the housing crisis, where conflicting interests can be counted in the hundreds. Short of a national housing “czar,” we need a forceful entity that can expedite the provision of millions of new homes.

So, the country isn’t broken, it just needs improvement. That’s not news for most of us, but in this crazy mixed-up world it’s nice to hear.

Tags: , , ,

This entry was posted on Monday, June 17th, 2024 at 11:50 am and is filed under Debates. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

Leave a Reply