Canada’s economic performance has been solid and the nation is well-positioned to deal with the challenges posed by an ageing population according to an economic survey released today by the Paris-based Organization for Economic Co-operation and Development. However, the OECD is recommending reforms to improve productivity, competition and public finances.
In the survey, the OECD notes that the Canadian economy is expected to expand by close to 3.5% in 2005, and the output gap will soon be closed. Monetary stimulus should gradually be removed and the fiscal policy stance needs to remain neutral, it recommends.
The OECD suggests that the Canadian dollar is now probably not far from its fundamental value. “Canadian firms will need to continue to adjust by making efforts to improve productivity to maintain competitiveness,” it says. “Policy makers should remain focussed on policies that enhance productivity growth across all sectors.”
The report suggests that product market competition could be strengthened. It says that competition in general is quite strong, but the Competition Act could still be improved. The remaining restrictions on inter-provincial trade should be lifted, especially for professional services. As well the OECD says restrictions on foreign direct investment should be eliminated. It adds that provincial governments need to inject more competition into all segments of electricity markets.
The report also recommends that obstacles to capital deepening and investment in human capital should be tackled by:
- provincial governments easing taxes on capital by eliminating sales taxes on capital goods and abolishing capital taxes; and
- implementing more effective programmes for adult education to improve literacy skills and provide opportunities for Canadians without qualifications to improve their labour-market prospects.
It also calls on government to reform policies that discourage people from working. It says high effective marginal tax rates on low-income families and disincentives to continued work in the Canada Pension Plan should be removed and the scheme made actuarially fair for early and later retirement, as the Quebec Pension Plan is set to do.
The report recommends the long-term sustainability of public finance needs to be closely monitored across all levels of government. It adds that structural improvements are needed in the health sector, noting that with a long-term federal contribution to provincial health budgets now agreed, provinces should focus on greater efficiency to meet health care objectives.
OECD Economic Survey Canada 2004
http://www.oecd.org/document/24/0,2340,en_2649_34569_33838040_1_1_1_1,00.html