Canada : Structural reforms key to boosting long-term growth
- Overview of the Economic Survey of Canada
- OECD Economics Department Working Paper No.800 "A simulation model of federal, provincial and territorial government accounts for the analysis of fiscal-consolidation strategies in Canada"
Household debt is high. Owing to the lowering of interest rates and a still well-functioning financial system, household indebtedness continued to rise throughout the recession and is now near historical highs.
Trend output growth will slow. Over the medium term it will average more than a full percentage point less than over the past decade, underlining the importance of carrying on with structural policy reforms that can boost the economy’s potential rate of growth.
In the financial sector, a proper balance must be reached between regulation and competition. Aspects of the banking culture and context that proved advantageous in the crisis may reflect a lack of competitive pressure.
Budget consolidation is needed. The federal government’s structural deficit is estimated to be near zero, but Ontario’s and Quebec’s are estimated to be much larger. At the federal level and in most provinces, it should be possible to balance budgets by restraining the growth of spending over several years. In some jurisdictions, however, significant revenue increases will be necessary for consolidation to occur over a reasonable time horizon.
Much of the budget challenge hinges on controlling public health spending. The growth of public health spending must be reduced from an annual rate of about 8% seen over the last decade toward the trend rate of growth of nominal income in coming years (estimated to be less than 4% per year), the only alternative being to squeeze other public spending or to raise taxes or user charges.
Source: OECD, Economic Outlook 87 database.
Canada can boost value-for-money in health care. Regulation currently prohibiting private insurance for core services and mixed public-private contracts for doctors should be removed to spur more efficient service delivery and expanded capacity by way of private entry. Pharmaceuticals, home and therapeutic care should be integrated into the core public package. Revenues could be raised and excess demand curbed by implementing some sort of capped patient co-payments and deductibles.
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The Secretariat’s report was prepared by Alexandra Bibbee and Yvan Guillemette under the supervision of Peter Jarrett. Research assistance was provided by Françoise Correia.