Budget 2024

Tax and spend fiscal plan will inhibit growth

As published in The Financial Post

Canada finds itself on the cusp of something big. A combination of market forces, societal trends, and technological developments is creating new economic opportunities in smaller and rural communities. Most recently, the COVID-19 pandemic, as devastating as it was, has also introduced opportunities that we must seize upon. With all of these factors combined, we now have a historic opportunity to diminish the importance of one’s postal code in determining their economic future.

In a recent Bell Canada Public Policy paper, we discuss these opportunities; chief among them is the potential to boost economic growth and opportunity in smaller and rural communities across the country.

Canada’s economy, like other advanced economies around the world, is marked by a high degree of urban concentration. Consider for instance that in the previous five years, nearly two-thirds of net new jobs created in the country were concentrated in Montréal, Toronto and Vancouver. If you add Ottawa-Gatineau, Calgary and Edmonton, the share of jobs jumped to more than three-quarters. The trendline is broadly similar for other key economic metrics such as investment, business formation, and income gains.

There have been many papers written about place-based disparities, and the issue is not unique to us. In fact, the issue is part of a global phenomenon that is seeing the benefits of the knowledge economy being disproportionally concentrated in a small number of major cities. Leading urban scholar Richard Florida has described these trends as the “rise of superstar cities.” Economist Enrico Moretti has called them “the great divergence.”

But here in Canada, place-based disparities have been especially pronounced given our unique economic geography. Consider that the G-7 average for population density is more than 200 people per square kilometre, but in Canada, it is only four! Our major cities just loom larger over our economy, society, and politics.

Cities have been and will continue to be a tremendous source of strength for our country. There is a reason why many people around the world immigrate to our cities. They are home to diversity, innovation, and opportunity. Their ongoing dynamic qualities and prosperity will continue to be a key driver of our overall progress as a country.

However, too many places across the country have been excluded from economic growth and opportunity in Canada. These place-based disparities are not only an issue in terms of our social cohesion and political stability, but they may also undermine the fundamental Canadian objective of broad-based economic inclusion and opportunity.

It ought to be our collective goal to have an economy and society in which one’s postal code doesn’t determine dreams and aspirations.

The good news is that there are some promising signs of a shift in this direction. The first is the growing diffusion of broadband-enabled technologies. Major capital investment in broadband infrastructure – including a record $14 billion by Bell in the past three years alone – is enabling individuals and businesses to reach global markets irrespective of where they live or work.

The leveling effects of these broadband-enabled technologies is difficult to overstate: they can help Canadians better access core public services such as health care and education, enable entrepreneurs to reach new markets and customers through digital commerce, and boost the productivity of key sectors such as mining, energy, agriculture and agri-food.

The second reason to be optimistic is the interaction between technology and work. The historic disruption of COVID-19 has planted the seeds for big changes to where and how we work. New technologies are effectively enabling people and firms to relocate from major cities to smaller communities.

The interplay between these different factors (including housing prices) has the potential to boost economic growth and opportunity in smaller and rural communities. Canadian policymakers must think proactively to develop public policies that seize on this historic possibility.

One example is broadband policy. Reducing place-based disparities will require continued significant capital investment in broadband infrastructure in these communities. Government policy will need to create the conditions for such investment by enabling firms to earn a reasonable rate of return rooted in market forces. In fact, in its Budget 2023 the federal government recognized that “without the right policy framework Canada could see underinvestment in critical areas and a slow pace of innovation” (Canada’s Place in a Changing Global Economy, pg. 30).

However, this desire for large scale investments deployed in real time stands in stark contrast to policy choices that will lead to reduced, rather than enhanced incentives for private sector investment. Policy choices by the federal government and the CRTC such as those that further prescribe wholesale access to cable and fibre networks will distort investment decisions in favour of large, dense cities that guarantee a return on capital and undermine the goal of boosting growth and opportunity more broadly across the country.

A vision of inclusive economic growth and opportunity will not happen on its own. It will require coherent, consistently applied public policy at the federal level and business-led initiatives to achieve it. It is ultimately up to the private and public sectors, working together, to seize this once-in-a-life opportunity. Our communities and our country will be better for it.