Sluggish productivity stalls real income and purchasing power for Canadians
Canada's economy is losing billions in potential growth due to weak productivity.
According to Bloomberg, Deputy Governor Nicolas Vincent told Quebec economists that the country’s gross domestic product is $7,000 lower per person than it would be if productivity had kept pace with other advanced economies.
The productivity problem directly threatens real purchasing power and investment fundamentals.
As per Bloomberg, Vincent stated that “Canada's affordability problem is really a productivity problem,” noting that boosting output per worker allows firms to increase wages without raising output costs—representing “real growth in our purchasing power.”
Vincent emphasized the urgency of addressing what Reuters reported he called a “systemic problem that demands a coordinated approach across the economy,” particularly given that “shocks to our economy have become more frequent, and we are too vulnerable to their impacts.”
Canada's labour productivity growth has collapsed from 3 percent annually in the 1960s-70s to below 0.5 percent today, according to Reuters.
The financial implications extend to government budgets and tax planning.
Higher productivity gains generate more tax revenue through increased wages and profits, which Bloomberg reports “can provide better public services without raising taxes”—a critical consideration for wealth and fiscal planning.
Vincent outlined policy solutions to reverse the trend.
According to Reuters, these include creating a better investment climate by trimming regulatory complexity; increasing competition in telecommunications, passenger transportation and financial services; and investing in talent through training and credential recognition.
Bloomberg adds that fixing Canada's tax regimes, upgrading infrastructure and reducing interprovincial trade barriers are essential to drawing investment back into the country.
The Bank of Canada's research shows that closing the productivity gap with other G-7 nations—particularly the US—would significantly increase the country's capacity to grow without incurring inflation, reported by Bloomberg, making it more resilient to economic shocks.
