FINA Committee Report

In September 2006, the World Economic Forum’s Global Competitiveness Report 2006-2007 indicated that Canada’s relative position had declined since 2005. In particular, Canada fell from 14th to 15th on the Business Competitiveness Index and from 13th to 16th on the Global Competitiveness Index.

This relative decline in Canada’s competitiveness is unwelcome, particularly at a time when the Organisation for Economic Co-operation and Development’s Economic Survey of Canada, 2006 indicated that while our economy has had relatively strong performance in recent years, key future challenges will be improved productivity growth and the sustainability of fiscal and social policies that will help to address the challenges of an ageing population.

Productivity measures how efficiently production inputs, such as labour and capital, are turned into the final goods and services desired by consumers. In essence, it is a measure of output per unit of input into the production process. Statistical evidence reveals a positive relationship between a nation’s productivity performance and its standard of living, and some suggest that productivity may be the single most important factor influencing a nation’s long-term economic growth potential.

A number of factors influence a nation’s productivity performance, and a range of measures might be put in place to enhance that performance. Initiatives might be implemented to enable individuals to engage in work and non-work activities as well as in lifelong learning. As well, actions might be taken to ensure that the physical infrastructure in our communities facilitates high levels of productivity growth, and that other aspects of our communities make them desirable places for individuals to work and live, and for businesses to operate and prosper. Finally, measures might be instituted to provide businesses with an increased ability and willingness to engage in research and development as well as to adopt the best machinery and equipment for their employees.

While Canada has an enviable standard of living, our nation’s economic performance is not all that it can — or should — be. Governments have a role to play in creating the conditions for rapid and sustained productivity growth and for the improved competitiveness that will ensure a continued high standard of living and quality of life for Canadians. It is essential that the federal government act today to advance Canada’s competitive position in a world characterized by rapid technological change and the emergence of new economic powers.

It is with a focus on the importance of competitiveness that the House of Commons Standing Committee on Finance undertook its 2006 pre-budget consultations and invited witnesses to share their views about the federal taxation, program spending and other policy changes needed to enhance Canada’s competitiveness.

In choosing the theme of competitiveness, the Committee took a broad view of the factors that contribute to enhanced competitiveness. Our focus was not limited to the research and innovation, taxation, health, education and other spending measures that are important contributors to improved competitiveness, but was also on factors that contribute to national prosperity in terms of caring for our residents and our communities. In particular, we felt that there are a number of measures that the federal government might implement and actions that it might take to ensure that:

• our citizens are healthy, can fulfill their basic needs, have the necessary skills and education, and are presented with appropriate incentives to work and to save;
• our communities provide the physical, natural and social environment that is desired by individuals seeking a high quality of life and businesses seeking to operate in a cost-effective and efficient manner; and
• our businesses have a competitive tax regime, can access markets for their goods and services, and are able to benefit from secure and appropriately priced labour, capital and other production inputs.

Consequently, witnesses were asked to provide their input on four questions:

• What specific federal tax and/or program spending measures should be implemented in the upcoming budget to ensure that our citizens are healthy, have the right skills, etc. for their own benefit and for the benefit of their employers?
• What specific federal tax and/or program spending measures should be implemented in the upcoming budget to ensure that our nation has the infrastructure required by individuals and businesses?
• What specific federal tax and/or program spending measures should be implemented in the upcoming budget to ensure that our businesses are competitive?
• What specific federal actions should be taken in order that the federal government is able to afford the tax and/or program spending measures needed to ensure that Canada’s individuals and businesses can prosper in the world of the future?

On 23 November 2006, the Minister of Finance presented The Economic and Fiscal Update and Advantage Canada: Building a Strong Economy for Canadians (hereafter, Advantage Canada) to the Committee. In his appearance, the Minister outlined the five key areas in which Advantage Canada — the federal government’s long-term economic plan — seeks to gain a global competitive advantage for Canada. These areas are:

• taxes — lower taxes for all Canadians and the lowest tax rate on new business investment among the Group of Seven countries;
• fiscal finances — elimination of Canada’s total government net debt in less than a generation;
• entrepreneurism — a reduction in unnecessary regulation and red tape as well as enhanced competition in the Canadian marketplace;
• knowledge — creation of the best educated, most skilled and most flexible workforce in the world; and
• infrastructure — efforts to build modern, world-class infrastructure in Canada through public-private partnerships in order to ensure a seamless flow of people, goods and services.

The Minister also itemized the four key principles on which Advantage Canada is based. These principles are:

• focusing government on what it does best;
• creating new opportunities and choices for people;
• investing for sustainable growth; and
• freeing businesses to grow and succeed.

This report summarizes the presentations that were made to the Committee by Canadians during our consultations. It also presents our thoughts and recommendations on these issues and on the Minister of Finance’s presentation of The Economic and Fiscal Update and Advantage Canada, since our deliberations have been guided by what Canadians and the Minister of Finance told us.