Fraser Forum

Top three economic issues Canada’s federal leaders should address

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Heading into the debate, here are the top three economic issues Canada’s federal leaders should address:

1. The burden we are unduly placing on the next generation

Since the 2008 recession, Canada has witnessed the return of consistent deficits by the federal (and provincial governments), which means escalating debt. Total government debt (federal, provincial and local) has increased from $821 billion in 2007-08 to almost $1.3 trillion as of 2013-14. This translates into $36,734 per Canadian.

The next federal government should make a serious commitment to balance the budget and begin to reduce the burden the next generation faces.

Despite the common myth that governments lack revenue, the reason for the persistent deficits at the federal and provincial level is the result of massive ramp-ups in government spending since 2008/09.

Canadians should be wary of further accelerated increases in government spending, especially in the name of stimulating the economy. As the Fraser Institute’s 2010 study Did Government Stimulus Fuel Economic Growth in Canada? An Analysis of Statistics Canada Data found, the federal government's stimulus plan had virtually no impact on Canada's economic turnaround in 2009. This is really not surprising given the vast body of academic literature that casts serious doubt on the ability of government stimulus spending to boost economic activity.

2. Penalizing young Canadians with uncompetitive personal income tax rates

Given Canada’s aging population, young Canadians will make up a smaller share of the total population and are increasingly expected to carry the burden of the obligations made to aging Canadians. We must therefore stop penalizing economically beneficial behaviour through high and uncompetitive personal income tax rates. A large body of academic research has shown the negative effects of high personal income tax rates including reducing the incentives for individuals to work hard, increase their skills, invest, and engage in entrepreneurial activities.

Unfortunately, federal (and provincial) personal income tax rates remain too high and are imposed on comparatively low levels of income. Tellingly, the need to reduce personal income tax rates has been identified by consecutive federal governments, both Liberal and Conservative. Reducing personal income tax rates, particularly middle and upper rates, would help create an economic environment that is pro-work, pro-savings, pro-investment, and pro entrepreneurship.

3. Future economic dynamism is at risk with business start-ups declining

A number of prominent Canadians, including Bank of Canada Governor Stephen Poloz, have raised concerns about the state of business start-ups and entrepreneurship more generally in Canada over the past few years. There is general agreement that entrepreneurship is a critical facet of a well-functioning, prosperous economy. New firms started by entrepreneurs and businesspeople are the lifeblood of innovation, creativity, and economic progress.

Unfortunately, business start-ups with five to 20 employees has declined by 37.5 per cent over the past decade. The results for business start-ups with 20 to 50 employees are even more startling: a decline of 59 per cent over the same period.

The federal government can super-charge entrepreneurship by reforming capital gains taxes, a key tax for entrepreneurs and the financial backers of entrepreneurs, reducing the burden of regulations and red tape, and removing barriers to entry in regulated industries.


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