Long term priorities for Canada’s post-pandemic economy

March 19, 2020
David Williams

2 Minute Brief

The COVID-19 pandemic has radically altered the immediate priorities for Canadian and global policymakers. But before the pre-pandemic economy is forgotten, it’s important to take stock of how Canada’s economy was performing and what the long-term policy priorities will need to be once the crisis has passed.

Prior to the pandemic, federal policymakers had become over-reliant on labour inputs, rather than labour productivity, to drive economic growth. While it may have been easy to juice GDP growth by raising the immigration intake, a larger population does not lead to higher living standards as measured by GDP per person or real wages. Indeed, average annual growth in Canadian GDP per person over the five years to 2019 had shriveled to a meagre 0.3% per annum.

Canada’s pre-pandemic economy could barely manage 2% real GDP growth per annum without overheating. Fully four-fifths of GDP growth over the five years to 2019 was attributable to labour inputs, while productivity was making its smallest contribution to GDP growth since the 1980s. Capital intensity was lower than at the peak of the last business cycle in 2008 across most asset types. Why was Canada betting on a labour-intensive economic growth strategy in an era of digitalization and automation?

Population policy appears to have become a crutch and a poor substitute for pursuing efficiency-enhancing structural reforms. Going forward, key long-term priorities will need to be modernizing the tax system, delivering certainty and timeliness in regulatory processes, reducing interprovincial trade barriers, invigorating competition in product markets, and spurring business innovation and capital investment. These are long overdue national projects that will yield widespread benefits.

Once the COVID-19 crisis has passed, it will be important for policymakers to start addressing the inefficiencies and disincentives that have been holding back productivity growth and the spirit of innovation. Only through faster productivity growth can Canadians enjoy rising living standards over the long term.


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