Better approach would be to cut taxes and let markets find the right solutions, says Conference Board of Canada
Instead of picking winners, a better approach would be to cut taxes and allow the market to fight it out and find the right solutions for Canada’s current economic troubles, Pedro Antunes, chief economist at the board, said.
“To be very specifically making deals with three or four companies on battery production, I think is just risky,” he said. “What if it turns out that the solution to our road pollution is different? Who knows what technology comes around the corner?”
“It’s a dangerous road for governments to embark on to subsidize and compete to attract dollars,” he said. “It becomes more costly for taxpayers and there’s less room for governments to use those funds for other purposes.”
Productivity is a measure of gross domestic product (GDP) per hour worked. GDP measures the value of goods and services produced by a country during a specific time frame.
Antunes, however, said describing Canada’s poor productivity levels as an emergency is misplaced since it hints that there may be a quick fix.
“Restoring productivity growth may require addressing short-term industry disruptions with a more important focus on long-standing structural issues,” he said.
The Conference Board of Canada report, published on Wednesday, analyzes both the historical reasons and the more recent developments that have affected the country’s productivity levels.
Weakening business investment has reduced productivity growth by 0.5 percentage points per year over the past decade, the report said. If that slowdown had not occurred, nominal GDP would be roughly $130 billion (4.2 per cent) higher than it is today.
Sectors where productivity declined due to labour intensity and challenges in automation include accommodation and food, administrative, recreational and other private services. Poor productivity in large sectors such as construction and transportation was also a concern.
The report said some of the recent productivity declines may be due to a mistiming of the rapid hiring that occurred in the last two years.
Overall, Antunes said it was too early to analyze how recent events have affected the country’s productivity levels since the economy had some “major shakeups” in 2023 that need to settle a bit more.