The Prime Minister's budget could not “break the glass” on the economic growth crisis

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Before the Trudeau government 2024 budget Many published on Tuesday called on the government to address Canada's stagnant economic growth. But despite the growing consensus that the issue is a national crisisThe Trudeau government has continued the same approach that got us to this point in the first place.

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“You've seen signs that say 'Break the glass in case of emergency.' Well, it's time to break the glass.” said Caroline Rogers, the Bank of Canada's senior deputy governor, warned in a speech last month that Canadians could face lower living standards if nothing is done to stimulate economic growth.

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After ten days a joint interview, former Quebec premier Jean Charest and former federal finance minister Bill Morneau called on the Trudeau government to focus on economic growth in the budget. In particular, Morneau suggested that Canada needs more business investment “from sources other than government.”

These are just two examples of the growing consensus that Canada is suffering from an economic and productivity growth crisis.

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Economic growth generally refers to growth in gross domestic product (GDP), which measures the total output of an economy, and led by three factors — labor supply, capital stock and labor and capital efficiency.

Canada's GDP growth in recent years has been almost entirely fueled by labor supply, as the country has experienced. historical high population growth. However, while aggregate GDP is growing, per capita GDP (a common measure of living standards) is falling at an alarming rate. Since the second quarter of 2022 (when it reached its highest level since COVID-19), inflation-adjusted GDP per person has fallen from $60,178 to $58,111 in the fourth quarter of 2023, and has fallen in five of those six quarters, now below it. It happened at the end of 2014.

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Labor productivity, which is the amount of output (GDP) produced per hour worked, has similarly declined. Statistics Canada recently reported The fourth quarter of 2023 marked the first time since the beginning of 2022 that productivity increased, and the previous six quarters saw labor productivity decline or remain stagnant.

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As Carolyn Rogers notes, the consequence of both falling GDP per capita and falling productivity is a lower standard of living for Canadians. To end this crisis, the Trudeau government must address the issue the reason Canada's weak economic growth is a lack of business investment.

Business investment provides the capital needed to equip workers with technology and equipment to be more efficient and productive. However, according to the latest information studyFrom 2014 to 2021, inflation-adjusted business investment per worker in Canada fell from $18,363 to $14,687.

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This decline in business investment is partly the result of the Trudeau government disinterest encouraging entrepreneurship and business investment in the private sector. Indeed, the government's point of view higher spending, more regulation, and heavy involvement in the economy have done little to stimulate widespread economic growth.

By raising capital gains taxes on individuals and businesses, which the Trudeau government did in this last budget words Former Bank of Canada governor David Dodge says the government is doing “exactly the wrong thing” to boost productivity. Instead, these measures give people and businesses more reason to invest elsewhere.

Trudeau's latest budget will be cut in half because of a failed approach. Rising costs, increasing government involvement in the economy, and rising capital gains taxes compound our investment challenges. We need a complete policy change to solve the economic growth crisis.

Grady Munro and Jake Fuss are fiscal policy experts at the Fraser Institute.

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