Social Policy in Ontario

The hard truths Mark Carney’s economic turnaround plan must address

Posted on September 29, 2024 in Debates

Source: TheStar.com — Authors: David Olive

TheStar.com – Business/Opinion
Sept. 19, 2024.   By David Olive, Star Business Columnist

The task Mark Carney took on last week as the federal Liberal party’s top adviser on economic and productivity growth might prove more challenging than his previous roles as the central banker of Canada and later Britain.

Canadians are enduring a cost-of-living crisis, an acute shortage of affordable housing and a laggard productivity growth rate that could reduce Canadian living standards for years to come.

Carney and the national task force he is assembling have a mandate for an economic renaissance to solve those and other problems.

“With a winning growth plan,” Carney said last week, “we can build the strongest economy in the G7 and an even better future for all.”

And everything Carney recommends to the Trudeau government must square with his commitments to environmental sustainability (he is the UN special envoy for climate action and finance) and to social justice.

In his 2021 book, “Value(s): Building a Better World for All,” Carney said that unrestrained capitalism has abetted climate change, rising income inequality, and financial upheavals like the Great Recession.

“As commerce expands deep into the personal and civil realms,” Carney wrote, “the price of everything has become the value of everything.”

Fortunately, there are extensively researched remedies for our economic dysfunctions, which have not been implemented for lack of political will.

Here are some.

• Knock down provincial trade barriers. It has been estimated that trade barriers among provinces and territories reduce economic activity by as much as $200 billion per year.

And lack of harmonization of rules, regulations and standards among jurisdictions stunts economic and productivity growth, elevates consumer prices, restricts labour mobility and slows the pace of new housing construction.

As it did in reforming the Canada Pension Plan and in spearheading a national program of affordable daycare, Ottawa can again work with the provinces to remove trade barriers and create uniform national standards.

• Tax reform. Restoring the federal portion of the GST to its original seven per cent would generate about $28 billion in government revenues in 2028-29, according to the C.D. Howe Institute.

That’s equal to almost three-quarters of this year’s projected federal deficit.

Ottawa could use that money to largely close its deficit gap.

Or it could provide income-tax relief to Canadians, eliminating some tax brackets and raising the income levels at which higher tax rates kick in.

Distasteful as they are, consumption taxes like the GST do less harm in constraining economic growth than taxes on income and capital.

At the current five per cent rate, Canada’s federal sales tax is among the lowest in the Organization for Economic Co-operation and Development (OECD).

• Raise the OAS eligibility age. Lifting the eligibility age for Old Age Security to 67 from 65would ease the burden on taxpayers from one of Ottawa’s biggest expenditures.

OAS spending is expected to rise to $96 billion in 2027 from $69 billion in 2022. Canada’s aging demographics will push OAS spending even higher in following years.

More action items

• Canada’s supply management system for dairy and poultry products inflates consumer prices, has not saved the dwindling number of family farms, and is a constant trade irritant with the U.S. It needs to be scrapped.
• Roughly half of the $40 billion Ottawa spends on corporate welfare serves no useful purpose, says John Lester, an executive fellow at the University of Calgary. And Carney faulted the latest federal budget for too many state subsidies.
• The North American Free Trade Agreement on which Canadian prosperity relies is up for renewal in 2026 and expires altogether in 2036. Ottawa must negotiate with the U.S. and Mexico a renewed Canada-U.S.-Mexico Agreement (CUSMA) that never sunsets. That would reduce uncertainty in Canadian business investment decisions and provide greater job security.

And restoring our fiscal health is imperative if Ottawa is to avoid becoming even more debt-strapped in meeting its ambitious commitments.

Carney has suggested that the current model of economic governance, which he calls “spend, support and subsidize,” might have gone too far.

Fiscal imprudence, by provinces as well as the feds, risks a debt trap for governments that could force them to resort to austerity to bail themselves out, as occurred in the 1990s.

Carney labels the austerity model “demolish, destroy, deny,” which would, among other harms, weaken the social safety net.

So, Carney’s job is to find the right balance between the “dynamism” he seeks in private-sector investment and the proper degree of state intervention to spur economic growth rather than obstruct it.

If Carney’s economic renewal strategy is sufficiently bold it could be a winning campaign platform for the Liberals in the election expected no later than October 2025.

Or it could be a transformative blueprint adopted by the Tories on taking power.

Either way, the country wins if Carney’s turnaround plan is built on hard truths and is irrefutably wise.

https://www.thestar.com/business/opinion/the-hard-truths-mark-carney-s-economic-turnaround-plan-must-address/article_9d41645c-7202-11ef-b18f-b735dae40531.html?source=newsletter&utm_content=a03&utm_source=ts_nl&utm_medium=email&utm_email=0C810E7AE4E7C3CEB3816076F6F9881B&utm_campaign=top_2473

Tags: economy, pensions, Seniors, tax

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