Canada's Federal Finance Minister, Bill Morneau, is busy with his mandarins, pulling together the Liberal government's second budget, due in the spring. As usual there are plenty of rumours and trial balloons out there. It's being hinted, for example, that the current year's fiscal deficit might be a bit smaller than some of the recent data have suggested; if true, this might mean that the government has room to provide still more stimulus this time.
There has also been a suggestion that the government, in its zeal to raise revenues by closing loopholes, might start to tax medical benefits. This prompted a firestorm of protest from those lucky enough to enjoy such benefits, and the idea has quickly disappeared. If there is to be any loophole closing in this budget, it's likely to target the favourable tax treatment of stock options.
One set of ideas that is likely to make its way into the budget, in whole or in part, is the latest report from Morneau's Advisory Council on Economic Growth. The executive summary can be found here, and it's a treasure trove for connoisseurs of on-trend babble. A "more inclusive growth path"? Check. Government as "convenor/catalyst"? Check. The "innovation ecosystem"? Check.
If we look behind this stylistic gobbledygook, what substantive ideas do we find? The Council offers three detailed recommendations, as follows:
* Unlocking innovation to drive productivity and help new companies scale up more rapidly,
including five sub-recommendations to improve the innovation ecosystem
* Accelerating the building of a highly skilled and resilient Canadian workforce by establishing
a “FutureSkills Lab”
* Unleashing the growth potential of key sectors such as the agfood sector
These sound very fine, but all past experience suggests that it's very difficult for governments to make any real difference in these areas. The Council wants governments to be "first customers" for Canadian innovations, something the Province of Ontario has tried in the public transit sector with disastrous results. The "FutureSkills Lab" sounds like exactly the kind of effort to pick winners that governments everywhere are really bad at -- and with a suggested budget of $100 million per year, looks like a massive boondoggle just waiting to be plundered.
As for the "agfood sector", much of Canada's agriculture is currently heavily protected and supply-managed, which is why I pay three times as much for eggs and milk here as I would just across the border. Any renegotiation of NAFTA is sure to see the US demanding freer access to the Canadian food market, which suggests "agfood" might not be the best place to be looking for higher growth.
The same goes for the first of the two broader recommendations offered by the Council, which are:
* Positioning Canada more effectively as a central global trading hub
* Tapping into our economic potential through broader workforce participation
Canada's continuing strong commitment to free trade is starting to look almost quixotic in a world of closing borders. Trade is a good thing, but it may not be the best place to be looking for growth right now. As for workforce participation, the specific ideas floated by the Council include one that corresponds exactly to the Trudeau government's election platform -- a national daycare program -- and one that directly contradicts it -- raising the pension age in order to "encourage" older workers to stay in the workforce.
Morneau has already shown that he takes the Council's work seriously. In its first report last year, it suggested the establishment of a national infrastructure bank. Morneau duly established this, with seed capital provided by the government, in its first budget. Since then, very little has happened. No doubt some of this latest set of proposals will end up in the budget, but it's hard to be confident that they will succeed in setting the economy on a sustainably higher growth path, as the Council hopes.
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