Contents | Executive Summary | How to obtain this publication | Additional Information
Published on 26 June 2006
An Economic Survey is published every 1½-2 years for each OECD country. Read more about how Surveys are prepared. The OECD assessment and recommendations on the main economic challenges faced by Canada are available by clicking on each chapter heading below. Chapter 1 identifies the challenges for which the subsequent chapters provide in-depth analysis and policy recommendations.
Chapter 1: Chapter 1: Managing the challenges ahead
The Canadian economy has performed well in recent years, and its per capita GDP gap with the United States has been narrowing, once adjustment is made for terms-of-trade gains. However, a number of challenges lie ahead. Rapid population ageing is expected to affect the size of the workforce and weigh on public finances through a surge of elderly and health care spending. Improving productivity performance will be crucial to achieving durable prosperity gains, given the nation’s already high employment rates. In addition, it will be important to ensure that the federal and provincial fiscal arrangements, as well as social policies, are on a sustainable path.
Chapter 2: Improving the business environment
This chapter considers policies affecting the business environment and examines how the federal, provincial and territorial governments could move towards establishing a more level playing. A number of issues need to be tackled. High marginal effective tax rates on capital reduce new investment and also lead to a misallocation of resources. Product market competition would be invigorated by liberalising electricity markets; lifting foreign direct investment restrictions in telecommunications, broadcasting and transport; dismantling inter-provincial barriers in services; and scaling back occupational licensing. Agricultural supply management systems should be replaced by open markets and industrial subsidies should be minimised. The cross-subsidy component of unemployment insurance needs to be addressed. Regulation of banking and securities ought to focus on building deeper, integrated markets. by allowing consolidation to take place, by ensuring effective competition from foreign bank entry and by achieving a single securities market.
An excerpt from chapter 2: Economic survey of Canada 2006: Business Taxation is also available
Chapter 3: Innovation and economic performance
This chapter concentrates on the more specific aspects of innovation in Canada to identify where policies could be improved. The most critical factor in encouraging innovation is getting the framework conditions right so that businesses can flourish. The chapter first reviews Canada’s performance on innovation, which is relatively good on product innovation but weaker on processes. Public R&D needs to be governed by an integrated strategy, while generous tax credits for business R&D should be re-examined. More attention is being paid to commercialisation of R&D. While Canada has enough scientists to meet current demand, it lacks people with business skills. Diffusion would also be aided by lifting general literacy and life skill levels. Well-designed co-financing arrangements would encourage participation in adult education and training. Lastly, the venture capital market would perform better if the tax advantage provided to Labour-Sponsored Venture Capital corporations were removed.
Chapter 4: Adapting fiscal policy and financial arrangements in the federation
This chapter examines the sustainability of financial arrangements within the Canadian federation. Fiscal performance is currently amongst the best in the OECD countries, but some refinements to the fiscal framework both at the federal and provincial levels may be helpful to prepare the economy to cope better with the long-term challenges of rising spending on health and long-term care. In addition, long-term projections at the general government level will help to verify whether current policies are consistent with Canada’s future needs. The federation has thus far achieved its goal of ensuring provinces and territories have sufficient revenues to deliver similar public services at comparable level of taxation. However, existing federal-provincial arrangements may not be sustainable over the medium run. Streamlining the system of transfers, as well as strengthening the accountability of the various levels of governments, would be beneficial. Moreover, the present equalisation system needs to be adapted to structural changes under way and the growing importance of the energy sector.
Chapter 5: Social policies: from social welfare to social development
This chapter reviews recent changes that have been introduced to improve the welfare mix of social policies in Canada and suggests further adjustments to raise their efficiency. Family policies need to be redesigned to lower the disincentives to work they currently embody, particularly for low-income earners. Social programmes need to shift their focus from short-term intervention to high quality skill-upgrading. Social and economic inclusion of the Aboriginal population and recent immigrants could be accelerated by tailored measures, while programmes for disadvantaged children and at-risk families could be further developed. Access to early education and childcare services could be facilitated for young children and especially, low-income families. As the population ages, making it easier for older workers to remain in the labour force will also be beneficial.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assesment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic Survey of Canada 2006 is available from:
For further information please contat the Canada Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Deborah Roseveare and Annabelle Mourougane under the supervision of Peter Jarrett.