taxes - The Trawler.org
In a recent opinion piece for the National Post, Andrew Coyne discusses the challenges related to the productivity problem faced by the Canadian economy, and possible solutions to it. Canada’s economic productivity has fallen behind other developing nations over the years. “Between 1985 and 2006, Canada’s productivity growth ranked 15th of 18 developed countries by the OECD,” and Coyne notes that productivity is set to deteriorate further.
Coyne suggests that the country is facing a “double whammy” of aging population on the one hand, and a shrinking work force on the other. “Between the Baby Boom of 1945-1964 and the “baby bust” that followed it, the result is a projected ballooning in the relative numbers of the elderly.” The proportion of those over the age of 65 is forecast to rise from 12% to 25% by 2030. On the other hand, the number of people of working age for every retiree will fall from 5 to 2 by 2030.
The C.D. Howe Institute published a report suggesting that Canada is facing a “net unfunded liability” (promises to pay, mostly for healthcare, for which no funds have been set aside) of $2.8 trillion. The expected increase in public spending on pensions and healthcare, together with a shrinking labour force will further exacerbate Canada’s productivity problem.
Coyne lists several solutions for declining productivity, some of which are presently applied, but quickly dismisses them as “partial fixes” which would make “no more than a dent in the problem.” Such ”partial fixes” include healthcare and pension reform to reduce costs, encouraging people to work past the traditional retirement age, encouraging larger families, and liberalizing immigration policy.
Coyne dismisses the utility of the various aforementioned social policies because they do not directly address the issue of productivity. Instead, he argues for neoliberal economic solutions such as lowering taxes and encouraging foreign investment to encourage investment and foster productivity through competition. He notes that while the Canadian policy makers “got a lot of things broadly rights in recent years” with freeing trade, cutting inflation, balancing budgets and investing in R&D, important sectors of the economy remain “over-regulated, over-protected, over-priced oligopolies.” Coyne concludes that overregulation is a “luxury” we can no longer afford if we want to meet the productivity challenge.
While lowering taxes and fostering competition can help create new incentive frameworks for private firms that enhance productivity, Coyne perhaps too hastily dismisses social policies that can affect the incentive structures of the population at large. For a more detailed exposition of Canada’s productivity issue, please refer to a recent article in the Ivey Business Journal.
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