Canada Needs a Financial Plan

Evelyn Jacks

According to a July 23 publication by the Fraser Institute, we are getting poorer here in Canada and the prospects for economic growth are looking grim.  This should be of concern to every Canadian concerned about their “real income” – that’s their purchasing power – and by extension - their ability to fund consumption now and for important family milestones in the future:  retirements, education and homeownership.  It’s grim, but there are practical suggestions for a turn around plan. Here’s a synopsis of the report.   

Purchasing Power Affects Standards of Living.  The report measures changes in purchasing power over time based on the broad measure of per-capital gross domestic product or GDP.  The calculation is simple:  economic output in a country divided by its population.  More specifically says the report, the more an economy produces will directly and positively affect its real income. These changes were then ranked with 30 other countries in the OECD with similar economies.

Time Frames for Comparison.  The period between 2002 and 2022 was used to allow for a comparison economic performance over a longer term in which multiple business cycles, two recessions, and multiple changes in governments have occurred.  Here’s how Canada fared:

• In 2022 (the last year for which data was available), Canada’s aver per capital income of $46,035 US ranked just below the OECD average of $46,266.
• Measured over a longer period however, Canada has been losing ground against its peer countries, with an average annual growth rate of less than 1%: we are tied for third last place and are growing at half of Australia’s rate and much less than Ireland (8.4%), Poland (4.3%) and Hungary (3.8%).
• Worse yet, the report says that “Canada’s GDP per capita (after adjusting by inflation), which exceeded the OECD average by US $3,141 in 2002 and was roughly equivalent to the OECD average in 2022, is projected to fall below the OECD average by US$8,617 in 2060.”

The Root Causes.  On the current trajectory we are forecasted to become poorer over time as our real incomes (purchasing power) will be negatively affected.  In fact, Canada could have “the worst projected growth in GDP per capita among OECD countries.”

We need to turn this around.  The root cause, according to the report, is the very low or negative growth in labour productivity in our country. The report says this is reflective of weak investment in physical and human capital per worker.

What We Can Do.  The report makes several suggestions:

1. reduce regulation and barriers to international and interprovincial trade (including improved labour mobility),
2. encourage innovation and entrepreneurship
3. bring on tax reform aimed at improved tax competitiveness and a support a stronger investment climate
4. reduce the size of government

We’ll discuss these issues in greater depth at the Acuity Conference for Distinguished Advisors.  Here’s the agenda and how you can register and participate to position your work with clients to prepare for a future short of safe havens: check out all the details online!