Economy
Colby Cosh: Is Canada's economy 'leaking' stimulus? – TheChronicleHerald.ca
On Tuesday the CIBC economics research shop
issued a paper
by Royce Mendes describing Canada’s economy as “leaking” fiscal stimulus dollars to other countries during the pandemic. The paper is likely to be a hot topic of discussion over the next week or so, but I can’t say I would regard it as making an airtight case for its hypothesis.
On the other hand, who would have given the matter the slightest thought if a banker hadn’t written about it? At a minimum, Mendes’s discussion makes you wonder whether, and exactly how, the character of Canada’s small open economy has entered into government fiscal planning — which, like everything else pandemic-related, is subject to the dominion’s national hatred of transparency.
Mendes’s idea is that sending dollars out of the country to pay for imports is of little consequence in a healthy economy, but in pandemic conditions it is creating a special problem (one that monetary policy, in an environment of near-zero interest rates, cannot help). COVID-19 has hit the service part of the economy, creating joblessness and insolvency, and has, if anything, increased our spending on consumer goods for final use.
This means money is going out and stuff made in other countries — that new guitar you’d had your eye on, or $100 worth of time-killing Amazon books — is coming in. The imports have the value of the dollars going out, but your guitar purchase won’t stimulate anything in the Canadian economy, except perhaps your guitar ability and, let’s face it, probably not even that.
Hence, the problem of leakage: when you switched your spending away from baristas or personal trainers or symphony musicians, you inadvertently reduced the “multiplier” effect of the money the government is spending on businesses and individual transfers to keep us all afloat. Mendes suggests that some of the enormous Canadian fiscal stimulus — higher, relative to the national gross domestic product than in any other G20 country — may have been wasted because of this, providing a little extra net stimulus to the rest of the world. Or perhaps our country is just arranged so that we have to go deeper into the hole to get the same stimulus effect from the same amount of dollars, and there’s not a whole lot we can do about it.
This is not perfectly well-established by the paper, which offers zero discussion of what would seem to be half of the leakage equation: are other countries leaking to us? Mendes establishes that Canadian purchases of imported consumer goods have increased dramatically, but the numbers also show that Canadian imports of motor vehicles and parts, energy and aircraft have declined by about the same magnitude.
I don’t know what the net effect of the changes in the various categories might be, and there is no discussion at all of exports. Mendes also claims a “clear correlation,” on the basis of a scatter plot with 10 data points, between the import dependence of various national economies and the size of their fiscal stimulus. I’m not a banker, but that chart and that adjective might tempt me to switch my mortgage away from CIBC on principle if I were a customer.
Even if the data weren’t fishy, weren’t our stimulus measures mostly demand-driven and improvised? Our government never consciously intended to lead the G20 in handouts. When the novel coronavirus reared its head, we mostly just happened to have a government that already adored them.
The exact degree of economic leakage and the disproportionate effects of the pandemic on various sectors are really separate issues that were combined for the purposes of this paper. Mendes makes the point, and it is valid whatever you make of the leakage issue, that the Government of Canada has not yet made any use of the GST as a rebalancing instrument. There is a moment of throat-clearing when he says that “lowering virus counts and making Canadians feel safe” in hard-hit settings like retail would have been ideal targets for early pandemic spending. (Rapid virus testing would have carried an especially large fiscal multiplier!)
With that horse well out of the barn and stomping senior citizens to death, the GST, altered selectively to boost businesses like retail and entertainment, remains as a potential lever for the long winter to come. These industries, Mendes estimates, only account for about a sixth of all GST revenue, and targeted tax relief would have offsetting buoyant effects on other sources of government income.
If the leakage story is right, direct handouts being spent on consumer imports are bound to be less effective and more self-limiting (although some will be human-capital-enhancing; even that guitar might be). The B.C. Liberals, before meeting their Waterloo in last month’s general election, proposed a complete year-long holiday from provincial sales taxes. Maybe they’ll end up losing the vote and winning the argument.
National Post
Twitter.com/colbycosh
Copyright Postmedia Network Inc., 2020
Economy
Canada's budget 2024 and what it means for the economy – Financial Post
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Economy
Opinion: Canada's economy has stagnated despite Trudeau government spin – Financial Post
Article content
Growth in gross domestic product (GDP), the total value of all goods and services produced in the economy annually, is one of the most frequently cited indicators of economic performance. To assess Canadian living standards and the current health of the economy, journalists, politicians and analysts often compare Canada’s GDP growth to growth in other countries or in Canada’s past. But GDP is misleading as a measure of living standards when population growth rates vary greatly across countries or over time.
Article content
Federal Finance Minister Chrystia Freeland recently boasted that Canada had experienced the “strongest economic growth in the G7” in 2022. In this she echoes then-prime minister Stephen Harper, who said in 2015 that Canada’s GDP growth was “head and shoulders above all our G7 partners over the long term.”
Article content
Unfortunately, such statements do more to obscure public understanding of Canada’s economic performance than enlighten it. Lately, our aggregate GDP growth has been driven primarily by population and labour force growth, not productivity improvements. It is not mainly the result of Canadians becoming better at producing goods and services and thus generating more real income for their families. Instead, it is a result of there simply being more people working. That increases the total amount of goods and services produced but doesn’t translate into increased living standards.
Let’s look at the numbers. From 2000 to 2023 Canada’s annual average growth in real (i.e., inflation-adjusted) GDP growth was the second highest in the G7 at 1.8 per cent, just behind the United States at 1.9 per cent. That sounds good — until you adjust for population. Then a completely different story emerges.
Article content
Over the same period, the growth rate of Canada’s real per person GDP (0.7 per cent) was meaningfully worse than the G7 average (1.0 per cent). The gap with the U.S. (1.2 per cent) was even larger. Only Italy performed worse than Canada.
Why the inversion of results from good to bad? Because Canada has had by far the fastest population growth rate in the G7, an average of 1.1 per cent per year — more than twice the 0.5 per cent experienced in the G7 as a whole. In aggregate, Canada’s population increased by 29.8 per cent during this period, compared to just 11.5 per cent in the entire G7.
Starting in 2016, sharply higher rates of immigration have led to a pronounced increase in Canada’s population growth. This increase has obscured historically weak economic growth per person over the same period. From 2015 to 2023, under the Trudeau government, real per person economic growth averaged just 0.3 per cent. That compares with 0.8 per cent annually under Brian Mulroney, 2.4 per cent under Jean Chrétien and 2.0 per cent under Paul Martin.
Recommended from Editorial
Canada is neither leading the G7 nor doing well in historical terms when it comes to economic growth measures that make simple adjustments for our rapidly growing population. In reality, we’ve become a growth laggard and our living standards have largely stagnated for the better part of a decade.
Ben Eisen, Milagros Palacios and Lawrence Schembri are analysts at the Fraser Institute.
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