By Kelsey Johnson and Fergal Smith
OTTAWA/TORONTO (Reuters) – Canada’s political leaders should address the underlying problems limiting long-term economic growth and not just campaign on pocketbook issues ahead of the federal election this month, business leaders, economists and foreign investors say.
Canada’s sustainable pace of economic growth, estimated by the Bank of Canada at 1.8%, is not much faster than the rate at which its population is increasing, meaning many Canadians are no better off financially.
“None of the four parties as far as I’ve observed have talked at all about that side of life, how you generate actual growth, how you generate wealth, how you generate income,” David Dodge, senior adviser at Bennett Jones and former governor of the Bank of Canada, told Reuters.
While the election campaign has focused on issues like cell phone bills and boutique tax credits to quell discomfort among Canadians, economists say that a long-term fix would require increased government and private investment targeted at raising productivity. Canadians vote on Oct. 21.
Canada’s productivity growth, which drives higher wages, has tended to be lackluster. It rose 0.3% year-over-year in the second quarter, much slower than the 1.8% gain in the United States, the country’s biggest trading partner, official data showed.
A survey by Sage, a cloud business management solutions company, in partnership with market research agency Angus Reid, found last Tuesday that two-thirds of Canadian business owners believe current federal government policies have not helped businesses grow.
Measures that would accelerate economic growth include more efficient allocation of government infrastructure spending, reduced duplication of federal, provincial and municipal regulation and increased spending on research and development that leads to greater innovation, according to Craig Alexander, chief economist at Deloitte Canada.
John Pigott is CEO of Club Coffee, a Toronto-based company that he says invented the world’s first compostable coffee pod. A real “bugaboo” on the competitiveness front, he said, is Canada’s woeful ability to sustain innovation.
“We have a horrendous track record of commercializing innovation,” he said. “How do we take a Canadian invention and make it global and get real scale?”
Another challenge to Canada’s competitiveness has been U.S. President Donald Trump’s move to slash America’s corporate tax rate.
“What we’re seeing is Canadian companies and multinational companies who have operations here, are saying ‘my next increment of productive capacity? I’m investing in the (United) States’,” said Dennis Darby, president and CEO of Canadian Manufacturers and Exporters, which advocates for manufacturers.
The World Economic Forum on Wednesday said that Canada had dropped two spots in its global competitiveness rankings to 14th place, while Canada’s stock of foreign direct investment (FDI) has climbed on average over the last five years at about half the annual pace of FDI to the United States, government data showed.
Financial markets have taken in stride the prospect of increased deficit spending to meet campaign promises, with investors more worried about the impact of the U.S.-China trade dispute on Canada’s trade-dependent economy.
“As with most political choices, there is a time inconsistency problem,” said Tim Alt, a portfolio manager at Aviva (LON:) Investors. “What’s best for the long run, might not be best for one’s political career.”