Economic growth tops the priority list for Canadian policymakers — here’s why

• The real GDP growth forecast for 2024 is 0.7 per cent.
• While the Canadian economy is not growing as rapidly as the United States, he argued, few are.

• In our recent book, Fiscal Choices: Canada After the Pandemic, we explain why Canada’s anemic growth rate is worrying and why politicians and their advisors believe, almost unanimously, that economic growth is a policy imperative.
• Similarly, transfers to other governments — the Canada Health Transfer and Equalization payments, for example — are legal requirements.
• Reductions in spending or increases in taxes are austerity measures and austerity has so far produced limited, if any, payoffs in terms of economic growth.

Interest rates are outpacing growth rates

• When growth is strong and interest rates are low, debt is manageable.
• As long as the social rate of return from government spending is greater than the real interest rate, fiscal deficits help maintain output at potential.
• But right now, interest rates are higher than growth rates.
• At the time, interest payments on the debt consumed 7.04 per cent of the federal budget.
• In 2023, by contrast, the interest rate on bonds had climbed to 3.3 per cent and growth had declined to 1.1 per cent nationally.

Government review processes

• In the 2022 budget, the federal government announced a review of programs to realize savings in the order of $6 billion over five years.
• The 2023 budget and the 2023 Fall Economic Statement doubled down on this initiative, requiring savings in the order of $15.8 billion.
• With the exception of the review process undertaken by the federal government under Jean Chrétien in 1994, program reviews have yielded very little in long term savings.

Economic progress

• There is nothing wrong with reviewing our assumptions about what economic progress looks like and who benefits from a bigger economy.
• But we also need economic growth — not just so we can consume more, or generate more revenue for governments, but so we can take better care of one another.
• Improved productivity, in both the public and private sectors, is another way of saying more sustainable economic growth.

Michael M. Atkinson receives funding from the Social Sciences and Humanities Research Council of Canada. Haizhen Mou receives funding from the Social Sciences and Humanities Research Council of Canada.