Federal Budget Fails to Address Productivity Emergency
Business Council concerned by lacklustre response to Canada’s economic decline
April 16, 2024 (Vancouver, B.C.) – The Business Council of British Columbia (BCBC) has reviewed the 2024 Federal Budget and, while there are some notable mentions, overall, the budget lacks the fiscal discipline and policy agenda to reverse what the Bank of Canada has called a productivity “emergency.”
“We see little in the budget indicating the government grasps the nature and severity of Canada’s productivity decline,” says David Williams, BCBC’s Vice-president of Policy. “The government appears reticent to let market prices decide where the economy’s resources should be put to best use, preferring instead to direct resources through high taxes, high immigration, boutique subsidies, regulations and programs.”
According to Williams, Canada needs a policy agenda centered on fiscal discipline, reducing and broadening tax burdens, streamlining regulations, and improving competition to allow the private sector to flourish. BCBC has renewed its call for Canada to establish an Australian-style Productivity Commission – a statutory agency that can keep policymakers focused on productivity and advise on structural reforms.
The government’s claim that Canada’s economy is “outperforming” peer countries fails to focus on GDP per capita – a key metric of living standards – which is no higher than in 2014. By that metric, Canada has been one of the weakest economies in the OECD in the years before and after the pandemic. Looking ahead, the OECD projects Canada will be the weakest economy among 38 advanced countries over the next 40 years, with the lowest growth in per capita incomes – a bleak prospect for young Canadians.
While some measures in today’s budget are laudable, including the Indigenous loan guarantees, there remains a general lack of fiscal discipline. The budget projects a roughly $40 billion deficit this fiscal year – and next. At around 1.3 per cent of GDP this year, the deficit adds unhelpful stimulus when Canada’s inflation rate is around 3 per cent.
“Fiscal and monetary policy should not be running at cross-purposes. There is simply no reason for the government to be running large deficits when people are struggling to pay the bills because of inflation,” said Williams. “These deficits means that households and businesses face higher inflation and interest rates than they otherwise would, as the Bank of Canada is left to rein in inflation on its own.”
The federal debt to GDP ratio is 41.9 per cent of GDP in 2024/25 and barely decreases to 39.0 per cent by 2028-29. The cost of servicing this debt could become a constraint on future service provision or necessitate higher taxes, which will only hamper prosperity. At $54.1 billion in 2024/25, debt servicing makes up around 10 per cent of federal expenses, roughly equivalent to the Canada Health Transfer.
BCBC calls on the federal government to restore fiscal prudence sooner. The government should commit to balancing the budget over the next three years and to keep debt servicing costs to well under 10 per cent of expenses.
Lastly, future budgets should be released in advance of the fiscal year, instead of weeks after. Tardy budgeting undermines parliamentary democracy because it denies people an opportunity to assess the government’s spending and taxation plans before they begin. The federal government should be a leader, not a laggard, on fiscal transparency among Canada’s senior governments.
“The federal government needs a policy agenda to improve the nation’s productivity, and this isn’t it,” says Laura Jones, BCBC President and CEO.
MEDIA AVAILABILITY
David Williams, VP of Policy, is available to speak to the impact the federal budget will have on the Canadian and B.C. economies. For interviews, contact media@bcbc.com.