Roslyn Kunin: When governments try to play a direct role in increasing productivity by attempting to pick winners, or through regulation, the results are usually ineffective and costly.
*Editor’s note – this was written before the federal budget was delivered earlier this week.
After more than two years, the federal government brought down a budget on April 19. So let’s look at what the budget should do to best serve Canada, its people and our economy.
The first function of any budget is to compare expected income and expenditures. In a balanced budget, where income equals expenditure, the result is financial stability. Even better is a budget in surplus, where income exceeds expenditure. Don’t bet on seeing one of those.
This budget – like so many in the past – is expected to be in deficit, with government spending exceeding tax revenue (government income). The difference becomes part of our ever-growing government debt.
Deficits can be justified by circumstances and the pandemic-ridden past year certainly provided such justification. Prompt and generous government spending prevented the medical disaster of COVID-19 from generating the economic disaster of a recession.
Today’s situation is different. The economy has come a long way in recovering from the initial pandemic shock. Many households and corporations have well-padded bank accounts. Any further pandemic-related aid should be finely targeted to reach those still suffering from the impact of the pandemic.
It’s time for the government to get its budget back into balance and start reducing its record level of debt. Improving our productivity can increase income for the government and Canadians. As rising productivity increases output, income for workers and companies rises. The tax base expands, giving governments more revenue without having to raise tax rates.
Governments aren’t businesses. When they try to play a direct role in increasing productivity by attempting to pick winners, or through regulation, the results are usually ineffective and costly.
However, governments can play an indirect role in increasing productivity by providing the framework that only they can build, within which companies and their employees can prosper.
Roads are a very early example of such infrastructure. Other examples of transportation infrastructure that enhances trade, commerce and prosperity include railroads, airports and seaports.
As the pandemic has very clearly demonstrated, digital communication is increasingly supplementing if not replacing physical transportation for people. Ensuring that all communities in Canada have access to adequate and reliable digital and electronic networks is essential if we’re to maintain and increase our productivity.
Canadians have been fortunate in that we’ve been able to take for granted a steady, ample supply of electricity. Without that power, everything stops. Governments need to be concerned that sufficient power is being generated and that networks are provided, connected and maintained so information can flow to where it’s needed when it’s needed.
All these government investments must be undertaken with an eye to their ecological impact. Productivity isn’t enhanced if we can’t drink the water or breathe the air.
After looking after the infrastructure that will enable businesses and their workers to prosper, budget measures can target individual Canadians. Here too, emphasis should be on improving productivity for increased income and a rising tax base. People are more productive when they’re healthier and more skilled.
The cracks in our health-care system have become apparent. We need physical capital, adequate supplies and sufficient trained staff to keep Canadians healthy and to treat them in a timely manner when they’re not. People on a wait list aren’t productive, happy or even comfortable.
Training and education make people more productive, increasing their income and contributions to taxes and the overall economy. So does recognizing and utilizing all the skills, education and talents of all people in Canada, no matter where they acquired those skills.
Developing infrastructure and investing in human capital will increase our productivity. Another major path to a better economy is research and development. Research and development generate the new ideas, products and practices that lead to growth, allowing Canada to advance among the nations.
When you examine the latest federal budget, ask if it improves our infrastructure, enhances people’s health and skills, or supports research and development.
If the answer to any of these questions is no, should these measures be in the budget?
Troy Media columnist Roslyn Kunin is a consulting economist and speaker.