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.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
