Canada’s productivity problem is a pressing issue that has been plaguing the country for years. With productivity levels 30% lower than the US, Canadians are missing out on $220,000 per person per year in potential earnings. Nathan Jansen, assistant chief economist at RBC Economics, sheds light on the key issues contributing to this decline and offers solutions for improvement.
One of the main factors contributing to Canada’s productivity underperformance is lower business investment. Canadian businesses have been hesitant to invest due to a complicated regulatory approval process and high levels of red tape. This lack of investment ultimately leads to lower productivity growth and lower wages for workers.
Tax policy also plays a role in shaping Canada’s productivity landscape. While total tax revenues collected by the government are higher than in other productive economies, the mix of taxes in Canada may not be as conducive to growth. By reducing complexity in the tax system and making returns from investments more predictable, the government can encourage more investment and ultimately boost productivity levels.
Recent tax increases, such as the capital gains tax hike, may have unintended consequences on future investment returns. While these measures may be aimed at redistributing wealth and addressing affordability issues, they could also deter businesses from investing in Canada due to increased uncertainty.
Ultimately, the key to solving Canada’s productivity problem lies in creating a competitive economy that fosters growth and innovation. By addressing regulatory barriers, simplifying the tax system, and encouraging investment, Canada can work towards closing the productivity gap with the US and ensuring a brighter economic future for all Canadians.
