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Canada's Economic Potential Slowed by Poor Innovation
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Canada has arguably one of the most prosperous and competitive economies in the world. But we are not living up to our full economic potential that would increase well being for ourselves and future generations. The Institute for Competitiveness & Prosperity, in its fifth Report on Canada, Setting our sights on Canada's 2020 Prosperity Agenda, released today, proposes the 2020 Prosperity Agenda as a way of contributing to the national discussion on realizing our prosperity potential.
The Institute's research confirms that Canada's economy is one of the world's most successful, especially when compared to countries outside North America. Canada's GDP per capita ranks second among countries with a population greater than 10 million. GDP measures the value
created by workers and firms from the human, physical, and natural resources in Canada. But against the United States, Canada continues to fall further behind. In 1981, Canada's GDP per capita was $3,000, or less than 10 percent behind US GDP. Over the intervening years, the gap has widened and now Canada trails the US by $8,800, or 17 percent, per person.
This gap represents lost prosperity, which matters to all Canadians. In its Report on Canada last year, the Institute set out its Agenda for achieving this potential by 2020. This year, the Institute reviews progress and identifies the key next steps to put Canada on the path to achieving this
Agenda.
The Institute concludes that Canada's competitiveness is important for the average Canadian family. Its research shows that, if we met our prosperity potential, families would gain $8,800 in disposable, after tax income - every year. It also indicates that families across the income spectrum are affected by our unfulfilled prosperity potential. As the prosperity gap widened through the 1990s, Canada's upper- and middle-income families fell behind their US counterparts. Traditionally, lower income Canadians have out performed their US counterparts - but this advantage is fading as we fall further behind the US in overall prosperity. And governments at all levels across Canada would
also generate an additional $68 billion in tax revenue, an amount that could fund important social and capital investments.
Lagging productivity continues to be the biggest barrier to closing the gap. The Institute points out that productivity growth comes from innovation, not just efficiency improvements. Unfortunately Canada has lagged in encouraging innovation. For many years, for example, many manufacturing sectors were competing articifically using the low Canadian dollar. Now they are paying the price with the CDN dollar at par.
The Institute is proposing a wide range of initiatives to encourage and support innovation. Among them is the high priority for Canadians to shift their attitude from a collective complacency to a shared determination to achieve this potential.
Another priority is to build a smarter tax system to raise motivations for businesses to invest. Currently, Canada has among the highest tax rates on business investment in the world. The Federal Government is taking dramatic action to give Canada an environment more conducive to business investment. Its fall 2007 economic statement puts in place significant reductions in
corporate income tax rates. Ontario - and other provinces - need to follow suit.
Tax changes would help lift Canada's anemic business investment in productivity- and wage-enhancing machinery, equipment, and software. But we also need initiatives to welcome more robust business competition and ways to ensure highly capable managers are leading the pace.
The Institute continues to urge governments to increase their investment in education and points out that this is starting to occur, especially in Ontario. Its research in the area of poverty points to the importance of a high school diploma and other formal skills. At the post secondary level, the Institute urges an examination of the balance between research and student experience in our universities.
Setting our sights on the 2020 Prosperity Agenda
Attitudes: Accept the challenge; overcome complacency
- Government, business, labour, and community leaders need to turn up
the volume on the importance of prosperity and productivity
Investment: Focus on people and technology
- Invest in focused and innovative ways to fight poverty
- Raise awareness among all Canadians of the benefits of education
- Continue investments in post secondary education
- Assess the tradeoff between research and the student experience in
our universities
- Step up business investments in information and communication
technology
Motivations: Pursue smarter taxation
- Remove capital taxes immediately
- Reduce corporate income tax rates
- Convert provincial retail sales tax to a value added tax harmonized
with the GST
- Continue attacking high marginal tax rates for lower income Canadians
Structures: Place a premium on creativity and innovation
- Focus venture capital efforts on quality, not quantity
- Continue to expand innovation policy to include building management
capabilities
- Pursue the reduction of barriers to investment and trade
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Barry
Mr. Do It All
Apr 1, 2008, 1:20 PM
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