The Perfect Stimulus for Cash-strapped Governments

Date: June 30, 2020

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As published in the Globe and Mail

 

The beginning of summer has brought welcome news about Canada’s economy and Canadians’ prospects after a spring devastated by COVID-19. Measures of activity and confidence, even numbers of jobs, are up from the lows of March and April. But we still have a long way to go.

Millions of Canadians are still working less than they were, or not at all, and the reopening of the economy will be too slow and sporadic to save thousands of businesses. In past recessions, governments have provided fiscal stimulus, notably through infrastructure projects to speed recovery, so it is natural to hope for a similar spending boost this time.

Fulfilling that hope will be a challenge, however. Projects big enough to move the economic needle take time – we have ample experience of announcements that resulted in more planning, permitting and negotiating than construction and jobs. Stimulus big enough to kick-start a $2-trillion economy costs a lot of money – and money is hard to come by when governments are doling out tens of billions in income supports, shoring up a strained health care system and facing massive revenue shortfalls. A further challenge is that our problem is not simply weak demand. With so many businesses restructuring, supply chains under stress and a fraught international scene, we need more than spending. We need to rebuild our productive capacity.

Happily, there is one project that is big enough to move the needle, costs no money and can build new capacity for products and jobs here at home. We can enhance Canada’s economic union by removing the barriers that impede Canadians who want to buy and sell, work and invest across provincial boundaries.

The impact would be substantial. A 2019 study by the International Monetary Fund concluded that reducing internal trade barriers in Canada could boost the level of per-capita GDP by 4 per cent. A further bonus is that we already know much of what we need to do.

We can tackle a list – a very familiar list – of obstacles to the free flow of everyday goods such as dairy products and alcohol. We can also dismantle less visible obstacles: discriminatory government procurement rules, for example, and regulations that apply to items as varied as truck axles, fire extinguishers and safety kits – all of which thicken provincial borders, erode our competitiveness and raise costs for consumers.

We can address the increasing list of employment licensing requirements that make it hard for surgeons, plumbers and many others to pursue opportunities across provinces. Harmonizing rules around apprenticeships in particular would benefit young people, who are suffering disproportionately from the economic impact of the coronavirus.

The one-time boost to Canadian’s living standards from less internal friction in Canada would be like a multiyear bonus of economic growth – a valuable offset to some longer-lasting damage inflicted by COVID-19. Reducing these frictions would cost governments little. Indeed, by stimulating activity, they would generate some of the tax revenues governments need to build new health care capacity, support people who need to find different jobs and pay interest on the debts they have accumulated fighting the downturn.

If the will is there, we could make progress quickly. We already have a foundation of co-operation thanks to the Canadian Free Trade Agreement, which the federal, provincial and territorial governments signed in 2016. We can also draw inspiration from the Trade, Investment and Mobility Agreement between Alberta and British Columbia, and the New West Partnership Trade Agreement among British Columbia, Alberta, Saskatchewan and Manitoba. Moving faster on things already agreed to would help Canadians faster than megaprojects that would not materialize for years.

And critically, we can do this ourselves. As an outward-facing middle power in a world that has become more fractious and nationalist, Canada is exposed to breakdowns in international trade but limited in its ability to prevent them. If we cannot as easily buy, sell, work and travel abroad, why not focus more on buying, selling, working and travelling at home? Our fellow Canadians would appreciate the business. We would all benefit.

The economic recovery from COVID-19 will be, in the words of Bank of Canada Governor Tiff Macklem, “prolonged and bumpy.” Traditional fiscal stimulus is slow, and requires money governments lack. Canada’s internal market would do more, faster, to restore prosperity. A better Canadian economic union is the stimulus we need.

 

 

Goldy Hyder is president and CEO of the Business Council of Canada. William Robson is the CEO of the C.D. Howe Institute.

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