Canada has a productivity problem. Will Budget 2024 help?

Click to play video: 'Federal budget 2024: Canada promises $7B to boost productivity in AI, research investments'
Federal budget 2024: Canada promises $7B to boost productivity in AI, research investments
Canada’s 2024 federal budget promises about $7 billion to boost productivity, with the bulk going to artificial intelligence and research investments. But experts question whether the moves in this budget will actually work. Abigail Bimman has more – Apr 16, 2024

The Liberal government’s 2024 federal budget unveiled billions of dollars designed to boost Canada’s flagging productivity.  But some experts are questioning whether the budget does enough and whether the measures will be undermined by the new changes to the country’s capital gains taxes.

“Is this really going to fundamentally pivot the thinking in Canada around higher productivity generally?” former parliamentary budget officer Kevin Page said on Tuesday, after the budget was unveiled.

“These measures can’t do it.”

Click to play video: 'The politics of addressing Canada’s productivity crisis'
The politics of addressing Canada’s productivity crisis

Labour productivity is a measure of the real gross domestic product (GDP) created by the hours worked across Canada’s economy. Doing more with the same or fewer resources can bring higher wages, more jobs and faster growth, according to the Bank of Canada.

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Canada’s productivity rose slightly at the end of last year after declining for six quarters in a row, Statistics Canada said in December.

In March, Bank of Canada Senior Deputy Governor Carolyn Rogers called the country’s waning productivity growth an economic “emergency.”

Click to play video: 'Canada has a productivity problem. Will Budget 2024 help?'
Canada has a productivity problem. Will Budget 2024 help?

“You’ve seen those signs that say, ‘In emergency, break glass,'” she said.

“Well, it’s time to break the glass.”

In data for 2022, the Organisation for Economic Co-operation and Development (OECD), a group of 38 member countries from around the world, ranked Canada 17th in GDP per hour worked in 2022, behind leading Ireland, fifth-ranked United States and Italy. Canada also falls behind the G7 and European Union as collective groups.

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Page places the Liberal’s funding for productivity in the new budget between $6 billion and $7 billion, including $3.5 billion for strategic research infrastructure support and more than $2.4 billion to scale up artificial intelligence research and use.

He said the expansion of the inclusion rate on some capital gains could undercut the intent of the new investments and funding designed to boost productivity.

The budget proposed increasing the inclusion rate from 50 per cent up to two thirds on any gains made from selling a stock, income property or business above $250,000, with some exceptions, for individuals.

If the House of Commons votes the budget through, the measure will also apply to all capital gains realized by corporations and trusts, regardless of the $250,000 bar.

Budget documents state this will affect only 0.13 per cent of Canadians.

“(The government is) giving on the one hand and they’re taking away a lot more on the other hand through high taxes,” Page said.

“When you see weak consumption and weak investment now — the way (the government has) changed the capital gains tax now is going to have some negative impact in terms of recycling back some of those revenues that could have gone into investment.”

Click to play video: '3 key takeaways from the 2024 federal budget'
3 key takeaways from the 2024 federal budget

Canadian investment is slow, TD Economist Francis Fong said, because of conflict in Gaza and Ukraine, high interest rates and even factors like climate change, so a new tax is not helpful.

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“If I take all of that and I consider, ‘Am I willing to make this investment, put all this money in back into the Canadian economy?'” he said in an interview with Global News on Tuesday.

“If I have to pay an additional tax on that something, whatever that something is, I think that just makes it a little bit more difficult.”

Fong said productivity is a “difficult nut to crack” for any level of government but welcomed the new funding for AI and research.

— with files from Global News’ Abigail Bimman and Craig Lord

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