Productivity and long term growth

Going for Growth 2018 - Canada note

 

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Going for Growth is the OECD flagship report analysing structural policy settings and economic performance to provide policymakers with concrete reform recommendations to boost growth and ensure that the gains are shared by all. The 2018 Interim Report reviews the main growth challenges and takes stock of reforms enacted over the past year -- in both advanced and emerging economies -- on policy priorities identified in the previous issue of Going for Growth.

Country highlights

GDP per capita remains below the average of the most advanced OECD countries due to the gap in hourly labour productivity, which has widened markedly in the aftermath of the crisis and a declining labour force participation rate. Income inequality has edged up and is now slightly above the OECD average. Reducing barriers to product market competition remains a key to raising productivity. This requires rolling back non-tariff barriers to internal trade to facilitate economies of scale, lowering FDI restrictions in some network sectors, easing licensing requirements in retail sectors and less discrimination against foreign suppliers in professional services, air and road transport. Provincial apprenticeship training and certification requirements need to be harmonised to increase apprenticeship completion rates and inter-provincial mobility. Rebalancing taxation from sources with high efficiency costs, such as corporate and personal income taxes, towards those with low efficiency costs, such as consumption and environmental taxes, and reducing unwarranted tax expenditures would improve resource allocation and hence, productivity.

Going for Growth 2017 recommendations include:

  • Reduce barriers to entry for both domestic and foreign suppliers and enhance competition in network and service sectors by reducing foreign ownership restrictions in telecoms and broadcasting, and, on a reciprocal basis, in air transportation. Move towards more integrated and competitive electricity markets. Privatise Canada Post and eliminate its legally protected monopoly. Ease entry regulations and reduce discrimination against foreign suppliers in professional services, air and road transport. Reduce licensing requirements in retail trade. 
  • Reduce barriers to internal trade by making the sectoral coverage of the Canadian Free Trade Agreement (CFTA), which was agreed in principle by provincial premiers in July 2016 to replace the Agreement on Internal Trade, as broad as possible, notably by including energy. In the CFTA, prohibit agricultural supply management regimes, which are highly distortionary. Reconcile remaining regulatory differences (possibly via mutual recognition). Establish a pan-Canadian regulatory co-operation council to harmonise legislation, standards and regulations. Expedite dispute resolution and raise monetary penalties for non-compliance. 
  • Enhance access to post-secondary education and its responsiveness to skills demand by working with provinces and territories to harmonise training and certification requirements for all apprenticeship programmes, thereby facilitating access to post-secondary qualifications for disadvantaged groups. Publish data on student labour market outcomes by tertiary education institution. 
  •  Improve the innovation framework by evaluating R&D subsidies to determine whether the substantially enhanced R&D tax credit for small companies and heavy reliance on indirect measures are efficient, and adjust subsidies accordingly. Phase out federal tax credits for provincial labour sponsored venture capital funds and explore whether to make greater use of funds that operate like private, independent, limited partnership venture capital funds. 
  •  Reform the tax system by increasing environmental and value-added taxes, which are low, and reduce taxes with high efficiency costs, notably corporate and personal income tax rates. Review tax expenditures, including for small businesses, and eliminate those not warranted either by clear market failures or by equity objectives. 

Recent policy actions in these areas include:

  • A number of inefficient tax measures and expenditures have been eliminated.
  • Training and certification requirements have been harmonised for 8 additional Red Seal trades and changes have been implemented in most jurisdictions.
  • Restriction to foreign ownership has been reduced for Canadian air carriers. The Government also proposed to review and modernise the Broadcasting Act and Telecommunications Act.

Canada: Latest Economic Forecast 

Canada: Latest Economic Survey

 

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