CD Howe Institute: fixing our productivity problem

#canada #productivity #businessenvironment #economy

John Lester of the CD Howe Institute reported on the issue of Canadian productivity last month, and it seems to echo many of the elements that we reviewed last year. https://cdhowe.org/publication/canadas-next-government-must-prioritize-fixing-our-productivity-problem/ 1. Canada has an acute productivity problem 2. Productivity is the key driver of wages 3. We also have a prosperity problem as a result We ask the question: If this problem is so central and crucial to Canadians, why don't they care or focus on it? We believe this to be a social/cultural problem, and identifying problems and elaborating strategies and paths to recovery is simply not enough. Studying the paradox is not interrupting, it is influencing it.

To boost investment, our next government should reduce the corporate income tax rate by 2 percentage points and set the stage for a fundamental reform of the tax system that will make it more competitive and supportive of investment.

The business community and investors are not investing in Canada for a reason. Has anyone asked them why? What type of incentives are they looking for? Returns? Risks?

We must stop filling lower-skilled job openings through immigration, which keeps productivity and wages low by discouraging investment in new equipment and technologies.

Although this solution is obvious, Canadians opt for federal policies that make it easier to fill lower-skilled job openings with immigration. Again, a significant societal shift is required to cancel these policies.

Canada’s R&D performance would improve if the Scientific Research and Experimental Development tax credits were reformed by reducing the small firm subsidy rate and increasing it for large firms, making the subsidies refundable for all firms, and delivering assistance independently of filing a tax return.

Although this would be a significant step forward, the R&D credit should be expanded and accelerated. The SRED credits are for R&D. We argued in the past that this credit should be focused on innovation.

Finally, one point made by John Lester is that big companies are more productive. This point is valid. However, it has also been proven that small and medium-sized companies hire the most and contribute the most to growth. We have to be careful not to discourage small companies from being deterred by the fiscal regime. If these smaller companies are less productive and we want to make them bigger, the solution is not to put them in a higher tax bracket. The current small company tax bracket does not incentivize companies to stay small(!)