Going for Growth - Canada

 101

Canada GDP per capita has remained between 5% and 10% below the upper half of the OECD countries over the past twenty five years. Labour utilisation is above average, but GDP per capita is dragged down by poor labour productivity.

Income inequality is around the OECD average and has changed little since 2000, with less-than-average redistribution through taxes and transfers. Greenhouse gas emissions are high per capita and per unit of GDP and have failed to decline over the past two decades.

A number of measures have been taken to enhance access to post-secondary education and its responsiveness to skills demand. Progress has also been made to improve the innovation framework through the federal government’s Innovation and Skills Plan, increased funding for fundamental research and greater support for venture capital.

The Canada Free Trade Agreement has reduced barriers to internal trade. Enhancing product market competition through reducing restrictions on foreign entry and barriers to internal trade is key to raising productivity. Tax reform would further promote productivity and green growth. Further work with provinces to improve labour market information and the number and quality of apprenticeships would boost students’ labour market outcomes and is of particular importance for disadvantaged groups. Improving labour market outcomes for women, notably by making childcare more accessible, would support inclusive growth.

Growth performance, inequality and environment indicators: Canada C. The gap in labour productivity persists

A. Growth Average annual growth rates (%) GDP per capita Labour utilisation of which: Labour force participation rate Employment rate1 Employment coefficient2 Labour productivity of which: Capital deepening Total factor productivity Dependency ratio

2002-08 1.3 0.6 0.3 0.3 0.0 0.5 0.4 0.1 0.2

2012-18 0.9 0.2 -0.1 0.3 0.0 0.8 0.4 0.5 -0.1

Level

Annual variation (percentage points)

2016 30.7 (31.7)*

2013-16 -0.4 (0)*

B. Inequality and environment

Gini coefficient3 Share of national disposable income held by the poorest 20%

GHG emissions per capita4 (tonnes of CO2 equivalent) GHG emissions per unit of GDP4 (kg of CO2 equivalent per USD) Share in global GHG emissions4 (%) * OECD simple average (weighted average for emissions data)

7.6 (7.6)*

0.1 (0)*

2016 18.7 (10.9)* 0.4 (0.3)* 1.7

Average of levels 2010-16 19.3 (11.3)* 0.5 (0.3)* 1.6

Gap to the upper half of OECD countries5 Per cent 0

-5

-10

-15

GDP per capita

GDP per hour worked

-20

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases.

StatLink 2 https://doi.org/10.1787/888933954705

102 

Policy indicators: Canada B. The gender gap in earnings is high

A. Barriers to FDI are comparatively high

Gap as a percentage of men's median earnings,¹ 2017

Index scale of 0-1 from least to most restrictive, 2018

0.7

20 CANADA

Advanced economies

0.6 15

0.5 0.4

10 0.3 0.2

5

0.1 0.0

Total

Fishing

Telecom

Retail

Screening

CANADA

Advanced economies

0

Source: Panel A: OECD, FDI Regulatory Restrictiveness Index Database; Panel B: OECD, Gender Database.

StatLink 2 https://doi.org/10.1787/888933955579

Beyond GDP per capita: Canada A. Inequality is just above the advanced economies' median Gini coefficient, 2016 or last available year¹ SVK, 24.1

CANADA, 30.7

ZAF, 63.0

Advanced economies median, 29.7

Emerging economies median, 46.2

B. Exposure to fine particulate matter is low Percentage of population exposed to PM2.5, 20172 % CANADA

Advanced economies

< 10 μg/m³ 10-35 μg/m³

Emerging economies

> 35 μg/m³

World 0

10

20

30

40

50

60

70

80

90

100

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

StatLink 2 https://doi.org/10.1787/888933956453

 103

Canada: Going for Growth 2019 priorities Reduce barriers to entry for both domestic and foreign suppliers, and enhance competition in network and service sectors. Regulatory barriers to competition in network and service sectors weaken pressures to innovate and adopt new technologies. 

Actions taken: No action taken.



Recommendations: Reduce foreign ownership restrictions in telecoms and broadcasting, and, on a reciprocal basis, in air transportation. Move towards more integrated and competitive electricity markets. Privatise Canada Post and eliminate its legally protected monopoly. Ease entry regulations and reduce discrimination against foreign suppliers in professional services, air and road transport. Reduce licensing requirements in retail trade.

Reduce barriers to internal trade. Non-tariff interprovincial barriers lower efficiency, particularly by reducing the market size. Supply management regimes distort markets for dairy, poultry and eggs through production quotas, minimum prices and high import tariffs. This weakens relationships with trading partners and contributes to inequality by supporting producers at the expense of consumers. 

Actions taken: The Agreement on Internal Trade was replaced by the Canadian Free Trade Agreement (CFTA) in 2017, which automatically covers sectors unless exceptions are identified.

Energy is covered for government procurement, while agriculture is not covered. A Regulatory Reconciliation and Cooperation Table was created, and maximum fines for non-compliance were increased.



Recommendations: Make the sectoral coverage of the CFTA as broad as possible, notably by including energy fully. Eliminate agricultural supply management regimes. Reconcile remaining regulatory differences (possibly via mutual recognition) and expedite dispute resolution.

Enhance access to post-secondary education and its responsiveness to skills demand. Better access to education for disadvantaged groups and the acquisition of skills in demand would boost incomes and reduce inequalities. 

Actions taken: Federal government transfers to provinces to support employment and skills training programs were expanded by around 15% in 2017. The government has provided additional funding of just under CAD 90 million per year for the Youth Employment Strategy (part of which will support a doubling of jobs funded under the Canada Summer Jobs programme) and launched the Student Work-Integrated Learning Program. The Future Skills Centre and Council were launched in 2018 to identify emerging skills needs and innovative approaches to help Canadians gain the skills they need. Apprenticeship training requirements have been harmonised in 20 of the 30 Red Seal trades. The cross-jurisdictional Labour Market Information Council was created in April 2017 to identify and implement Canadian policy priorities for the collection, analysis and distribution of labour market information. Statistics Canada is developing a new longitudinal data set tracking labour market outcomes of post-secondary students.



Recommendations: Work with provinces and territories to harmonise training and certification requirements for all apprenticeship programmes, thereby facilitating access to post-secondary qualifications for disadvantaged groups. Improve the accessibility and reputation of apprenticeship and vocational education systems through increasing funding certainty for pre-apprenticeship training and encouraging further development of pathways to advanced diplomas and degrees.

Publish nationally consistent data on student labour market outcomes by post-secondary education institution and course.

104  *

Increase labour market inclusion of women. Increasing women’s labour force participation and productivity and shrinking the large gender earnings gap would serve economic and inclusiveness goals. 

Recommendations: Further increase federal and provincial funding of childcare with a goal of making access to affordable, high-quality childcare available to all parents of children aged three and under. Extend kindergarten to all four year-old children. Support take-up of paid parental leave by fathers, as introduced in 2018, through information provision and, if necessary, increasing payment rates. Take further steps to address financial, mentorship and support-programme barriers to female entrepreneurship through a comprehensive national strategy for women’s enterprises, underpinned by more gender-disaggregated data.

Reform the tax system. Reliance on taxes with high efficiency costs, low environmental taxes and the maintenance of unwarranted tax expenditures distort resource allocation, reducing productivity.

*



Actions taken: The small business tax rate was reduced by half a percentage point from January 2018 and will be reduced by a further percentage point in 2019. Following completion of a tax expenditure review, the government announced measures in October 2017 – restrictions on taxable income splitting between household members (income sprinkling) and the allowable amount of passive investment income – to reduce misuse of the small business tax regime by highincome households.



Recommendations: Review the tax system as a whole to ensure that it remains efficient, equitable and supports the competitiveness of the Canadian economy. Encourage green growth by increasing environmental taxes and reducing taxes with high efficiency costs, notably corporate and personal income tax rates. Eliminate tax expenditures, such as lower rates and enhanced R&D tax credits for small businesses, where they are not warranted either by clear market failures or by clear equity objectives.

New policy priorities identified in Going for Growth 2019 (with respect to Going for Growth 2017). No action can be reported for new priorities.