If Prime Minister Carney is serious about national unity and getting our country back on track after a decade of floundering in the economic wilderness, he will make common sense policy decisions to address this week’s chart.
Canadian GDP is shown in the red-dotted line while U.S. GDP is shown in the solid blue line. Notice Canadian GDP is unchanged since 2017 on a per capita basis while U.S. per capita GDP has grown by ~15% over the same time frame.
Governments must make a concerted effort to avoid growing a country’s GDP over a 7-year period, which is exactly what the Trudeau Liberals did by discouraging foreign investment through increased regulation and crowding out private investment by increasing the size of the federal government by close to 50%.
The inability to grow Canada’s economy on an absolute and relative basis has several negative impacts on Canadians. For example, our purchasing power has been eroded relative to that of the U.S. The average U.S. citizen is wealthier with a higher level of discretionary spending – allowing Americans to spend more on travel, education, vehicle & home purchases, etc.
Stagnant Canadian GDP has reduced the value of the Canadian dollar which hurts Canadians given we import most of what we consume.
A lower Canadian dollar contributes to higher inflation all else equal, again, because we import most of what we purchase. Stagnant GDP also has a negative impact on tax revenues and our ability to fund social programs. If we assume tax rates stay the same, higher GDP translates into higher tax revenues.
What about our national debt? Growing our GDP reduces the size of our debt relative to GDP – this means we can grow ourselves out of debt by increasing tax revenues and making debt payments a smaller proportion of our federal budget, leaving room for additional spending on social programs.
An east-west oil pipeline is one example of a commonsense policy which would positively impact the Canadian dollar and our standard of living. Eastern Canada currently imports a substantial amount of foreign oil which could be displaced by oil produced in western Canada.
This one simple policy decision would have many positive implications for the Canadian economy. First, it would improve our balance of trade which could have a positive impact on the Canadian dollar.
Second, it would create jobs and investment in Canadian infrastructure which would increase GDP and tax revenue in Canada. Finally, it would diversify the export market for our oil, which would likely translate into higher realized prices, increasing royalty and tax revenues.
From an environmental perspective, would we rather have tankers importing foreign oil to Canadian shores or our own oil transported via pipeline? Statistically, what has a higher probability of environmental disaster, tankers or pipelines? Which country has superior environmental and human rights standards, Canada or Saudi Arabia?
What about Canadian unity? A pipeline would please Alberta and Saskatchewan, but what about the rest of the country? Federal equalization via transfer payments means that any economic benefit gained by ‘have’ provinces such as Alberta and Saskatchewan are automatically shared with ‘have not’ provinces such as Quebec and Manitoba.
There are many other examples of policies which can have an immediate, positive impact on our economy and standard of living and I sincerely hope Prime Minister Carney, with his distinguished resume in finance and economics, doesn’t waste time in correcting the policy mistakes of his predecessor.
Eric Van Enk is a wealth adviser & associate portfolio manager with National Bank Financial in Medicine Hat. He is a graduate of the University of Calgary, as well as a CFA charter holder with 20 years of financial markets experience in New York, Toronto and Calgary. He can be reached at eric.vanenk@nbc.ca
