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Longer-term Issues in the
Canadian Economy
Mike McCracken
Informetrica Limited
October 16, 2003
AAAE Luncheon, Halifax
Areas to Examine
•
•
•
•
•
•
Demographic base
US outlook and other Global Factors
Productivity & Investment
Growth, Inflation, Unemployment, etc.
Monetary Policy
Government Balances
IL
PEAP
20
25
20
23
20
21
20
19
20
17
20
15
20
13
20
11
20
09
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
%
Comparison of IL and PEAP % Change in Population
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
IL
IL Fixed
PEAP
20
25
20
23
20
21
20
19
20
17
20
15
20
13
20
11
20
09
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
Comparison of IL and PEAP Participation Rates
72
70
68
66
64
62
60
58
Issues Arising from Demographic
Factors
• Immigration Policy – age, mix, cyclicality?
• Emigration – brain drain problem?
• Retirement Age – should it change? Which
way?
• Increase labour force participation in other
age-sex groups?
International Dimensions
•
•
•
•
•
New Trade Agreements?
Technological Breakthroughs?
World oil price paths?
China and India – scaling up?
R-O-W exchange rates – do they matter?
Innovation and Structural Actions
• Innovation – does it translate into
productivity growth? How?
• New resource bases?
–
–
–
–
Pipeline access
Northern development
Bio-based economy?
BC offshore?
• Kyoto I and Kyoto II
Monetary Policy Objectives
• Any Changes?
– Inflation targeting at 2%?
– Maintain slack through fiscal policy and high
real rates?
Fiscal Policy Objectives
• Do surpluses continue?
• Does spending rise? Where?
• Are there tax cuts?
–
–
–
–
Personal income tax
EI premiums
Corporate tax
GST
IL
PEAP
20
25
20
23
20
21
20
19
20
17
20
15
20
13
20
11
20
09
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
%
Comparison of IL and PEAP Net Federal Debt as % GDP
80
60
40
20
0
-20
-40
-60
-80
IL
PEAP
20
25
20
23
20
21
20
19
20
17
20
15
20
13
20
11
20
09
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
%
Comparison of IL and PEAP Net Provincial and Local Debt as % of GDP
30
25
20
15
10
5
0
-5
IL
PEAP
20
25
20
23
20
21
20
19
20
17
20
15
20
13
20
11
20
09
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
%
Comparison of IL and PEAP Net Pension Debt as % GDP
0
-5
-10
-15
-20
-25
-30
Structural Choices
• Does the CPP buy most of the equity in the
business sector?
– Governance, conflicts
• Which way with health?
– more coverage by public institutions or
– a push for “privatization” – provision and
financing
• Infrastructure?
Wild Cards
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•
•
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•
•
Quebec (& Alberta) Separation
World Oil Price Shocks
Terrorist Attacks
Infrastructure Failure
Federal-Provincial Cooperation
Technology Breakthrough
The Good News
• Slowing population and labour force growth
• Continued improvements in real incomes
with rising productivity
• No inflation problem
• Strengthening exchange rate
• Fiscal improvements at all levels
Concerns
• Infrastructure – electricity, water &
sewer
• Health system improvements – elder care
and catastrophic cost protection
• Too much slack in labour markets
• Slow convergence on regional gaps
• Wild Cards – oil price shocks, terrorist
acts, etc.