Productivity and long term growth
Going for Growth 2014: Canada
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Canada enjoys relatively high GDP per capita but productivity growth has been weak despite comparatively high investment in knowledge-based capital, a fairly competitive business environment and a reasonably well-functioning labour market. As a result, Canada has failed to close the gap vis-à-vis the upper half of OECD countries. Key challenges include getting the most out of tertiary education and innovation policies.
Previous Going for Growth recommendations include:
- Stimulate competition and investment, by reducing barriers to entry and enhancing capacity in network sectors and professional services.
- Reduce barriers to foreign direct investment by further lifting FDI restrictions in key sectors and clarifying the net benefit test.
- Reform the tax system to make it more growth-friendly by shifting the burden from direct to indirect taxes.
- Enhance education outcomes by improving access to tertiary education for disadvantaged groups and facilitating the immigration process for foreign students upon graduation, to better respond to future labour market needs.
- Raise effectively the ability of firms to innovate and commercialise their products by improving R&D support policies.
Actions taken: Notable reforms in these areas over the past two years include:
- The federal corporate income tax rate has been gradually reduced to 15%.
- The authorities have increased targeted support to raise tertiary graduation rates of underrepresented groups.
- The 2012 federal budget streamlined R&D tax credits and part of the savings were used to increase direct grants.
The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, rebalancing the current account and reducing income inequality). In the case of Canada, improved access to tertiary education for disadvantaged students and immigrants will help raise their employment and earnings prospects, and hence to reduce inequality.