Canada’s economic productivity crisis can only be solved if the federal and provincial governments come together to address issues like major project approvals and inter-provincial trade barriers, Alberta’s premier said Wednesday.
“Every government, at every level in this country, needs to be pulling in the same direction,” said Danielle Smith, who spoke in Calgary at a national conference on productivity, a term which describes how much an economy produces per hour worked.
“There are too many regulatory roadblocks and too much red tape, too many barriers to the free movement of goods and services and labour, and let’s face it, there are too many taxes.”
The conference, organized by the University of Calgary’s School of Public Policy, attracted leading economists from across the country as well as finance ministers from several provinces.
Productivity, or Canada’s lack of it, has been in the spotlight in recent months. Earlier this year, senior deputy Bank of Canada governor Carolyn Rogers called the country’s lagging productivity record an “emergency.”
She pointed out that in 2022, Canadian productivity was 71 percent of that of the U.S., while Canada also lags behind its G7 peers.
According to data from Statistics Canada, Canadian business productivity fell by 0.6 percent over the past five years, while U.S. productivity increased by 10.1 percent over the same period.
A report by the U of C School of Public Policy shows that Canada’s productivity level is 12 percent below the U.K., 20 percent below France and 32 percent below the U.S.
Chris Ragan, associate professor of macroeconomics at McGill University, said this is a problem because productivity is the best way to ensure job and wage growth while also reducing the risk of inflation.
“You can have higher wages for workers, you can have higher profits for firms, and you can have lower prices for consumers,” Ragan said at the Calgary conference.
“All of these things typically are brought about through productivity growth.”
Alberta has the highest economic productivity of all the provinces, thanks to its oil and gas sector which—along with utilities and mining—has among the highest productivity level of any industry.
But the productivity of the oil and gas sector has declined by an average of 0.5 percent annually since 2019, according to a recent report by TD Economics.
Smith said this is the result of declining investment in the sector, in large part due to political and regulatory hurdles that have made it extremely challenging to build new projects or infrastructure.
“Capital is mobile. It goes where it can get the highest and safest returns, and Canada is increasingly seen as a risky investment,” she said, pointing to cancelled oil pipeline projects like Energy East and Northern Gateway as examples.
“The path from prospectus to profit is no longer clear and certain.”
Martha Hall Findlay, a former Liberal MP who is now the director of the U of C’s School of Public Policy, said that rather than put barriers in the way of the oil and gas industry, Canada should be investing in technologies like carbon capture and storage to ensure it can grow production and reduce emissions at the same time.
But she said the length of time it takes to get major projects approved in Canada is a major roadblock to corporate investment.
“If it takes 10 to 15 years to build something in this country, any country, that’s an awful lot of time for capital to be sitting there without actually earning a return,” she said in an interview Wednesday.
Other ways experts have proposed improving Canadian productivity include investing in skills and training, funding research and development and eliminating roadblocks to commercialization, and breaking down barriers between the provinces as much as possible.
Some economists have suggested that the removal of interprovincial trade barriers, such as those that restrict the cross-border sale of alcohol or meat products, could increase Canada’s GDP per capita by up to four percent.
Alberta Finance Minister Nate Horner said he believes that’s the low-hanging fruit when it comes to boosting productivity.
“It may lead to more challenging conversations between the provinces, but if it can add three to four percent, it’s got to be the easiest place to start,” Horner said in an interview.
Horner echoed Smith’s message that it will take all levels of government working together to fix the productivity challenge.
“Instead of all the provinces getting together and fighting over how to divvy up the pie, we need to have discussions in that room on how to grow the pie,” he said.
