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Economic performance has been solid, and macroeconomic policies are appropriate
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The economy is expected to expand by close to 3½ per cent in 2005, and the output gap will soon be closed. Monetary stimulus should gradually be removed and the fiscal policy stance needs to remain neutral.
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The Canadian dollar appreciated sharply in 2003 and is now probably not far from its fundamental value. Canadian firms will need to continue to adjust by making efforts to improve productivity to maintain competitiveness. Policy makers should remain focussed on policies that enhance productivity growth across all sectors.
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With a sound macroeconomic framework and structural policies that are mostly conducive to a well functioning economy, the country is well placed to meet the challenges of an ageing population, namely:
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Maintaining rises in living standards through strong rates of productivity growth and policies to attenuate the expected fall in hours worked on average across the whole population.
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Ensuring that public finances are sustainable, especially given pressures on health care outlays.
Product market competition could be strengthened
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Competition in general is quite strong, but the Competition Act could still be improved.
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Remaining restrictions on inter provincial trade should be lifted, especially for professional services.
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Restrictions on foreign direct investment should be eliminated, and policy objectives in this area should be achieved through other means.
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Provincial governments need to inject more competition into all segments of electricity markets.
Obstacles to capital deepening and investment in human capital should be tackled
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Provincial governments should ease taxes on capital by eliminating sales taxes on capital goods and abolishing capital taxes. Capital cost allowances should continue to be examined to ensure that they are aligned with useful economic lives.
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More effective programmes for adult education are needed to improve literacy skills and provide opportunities for Canadians without qualifications to improve their labour market prospects.
Policies should be adjusted where they discourage people from working
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The rules governing Employment Insurance should be changed to address persistent unemployment through more effective case management and activation requirements, reconsidering more generous benefits in high unemployment regions, and addressing the favourable treatment of seasonal full-time work. Enterprise experience rating should be applied to discourage repeated use of temporary layoffs by some firms.
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The disincentive effects of persistent high effective marginal tax rates (EMTRs) faced by modest-income families need to be addressed by a concerted effort across all levels of governments. Return-to-work income supplements could be used to encourage people to move off social assistance.
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The present disincentives to continued work in the Canada Pension Plan should be removed and the scheme made actuarially fair for early and later retirement, as the Quebec Pension Plan is set to do.
Pressures on public finances will need to be contained
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The long-term sustainability of public finance needs to be closely monitored across all levels of government.
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Structural improvements are needed in the health sector to improve the quality of data, deliver efficiency gains and provide stronger incentives to improve health outcomes. Case-related payment systems for hospitals and more extensive use of mixed payment systems for primary care providers could provide better incentives.
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With a long-term federal contribution to provincial health budgets now agreed, provinces should focus on greater efficiency, instead of seeking additional federal funding, in order to meet health care objectives.
Return to the OECD Economic Survey - Canada 2004 homepage
A printer-friendly Policy Brief (in PDF format) may also be downloaded. The Policy Brief contains the executive summary and the OECD assessment and recommendations, but does not necessarily include all of the charts available from the above pages.
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The complete edition of the OECD Economic Survey for Canada is available from:
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SourceOECD for subscribing institutions and many libraries
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Olisnet, under "Publication Locator", for government officials with accounts ( subscribe)
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