www.oecd.org/eco/surveys/economic-survey-canada.htm

OECDOECD Economics

2016 OECD ECONOMIC SURVEY OF CANADA

Boosting productivity and inclusiveness

13 June 2016

Well-being is high

2

Source: OECD (2016), OECD Better Life Index, www.oecdbetterlifeindex.org.

3

Economic growth has slowed

Source: OECD, Economic Outlook database.

4

Output has fallen in commodity sectors

Source: Statistics Canada, Table 379-0031.

Inflation remains low

5

1. CPI excluding the eight most volatile components and indirect taxes.Source: Statistics Canada, Table 326-0020.

House prices are high

6

Source: OECD, Economic Outlook database.

7

Residential investment is a large share of GDP

Source: OECD, Economic Outlook database.

Fiscal policy is expansionary

8

Source: OECD, Economic Outlook 99 database.

Productivity growth has long been weak

9

Source: OECD (2016), Economic Policy Reforms: Going for Growth 2016.

10

Source: OECD, Product Market Regulation database.

Network sector regulation is strict

Firm entry and exit rates have declined

11

1. The number of new self-employed workers who hire employees as a fraction of the working-age population.Source: S. Cao et al. (2015).

Young SMEs contribute disproportionately to job churn

12

1. Sum of gross job creation and gross job destruction.Source: C. Criscuolo, P.N. Gal and C. Menon (2014).

Recommendations to enhance sustainability and increase

productivity

Household indebtedness is high

14

Tighten macro-prudential measures and target them to hotspots.

Source: Statistics Canada, Table 378-0123.

The long-term provincial debt outlook is challenging

15

Restrain growth in provincial health-care outlays. Set a medium-term federal debt-to-GDP target.

Source: Office of the Parliamentary Budget Officer (2015), Fiscal Sustainability Report 2015.

16

Indigenous Peoples have poor outcomes

% share Indigenous People OthersPopulation 4.3 95.7

Without high school dipl.

30 12

Literacy/numeracy score

260/244 274/266

Employment rate, 25-64

62.5 75.8

Increase federal government spending on programmes for Indigenous Peoples, as planned, and evaluate programmes.

Carbon emissions are high

17

Price carbon emissions so that Canada can meet its international commitments.

Source: OECD (2016), OECD Environment Statistics database (Green Growth Indicators).

18

Build more east-west interconnections when it is cost efficient to do so. Liberalise generation and distribution to encourage competition where

it does not yet exist.

Source: OECD, Product Market Regulation database.

Product market regulation in electricity is heavy

19

Reduce foreign ownership restrictions in telecoms and broadcasting.

Source: OECD (2015), OECD Digital Economy Outlook 2015.

Telecom prices are high

20

Ease these limits to encourage entry & speed new technology adoption. Consider implementing a competitive airport slot allocation system.

Source: OECD, Services Trade Restrictiveness Index database.

Foreign entry restrictions are high in air transport

The share of young SMEs is relatively low

21

Review SME policies with a view to moving from subsidising firms on the basis of size to supporting young firms with innovative projects.

Source: C. Criscuolo, P.N. Gal and C. Menon (2014).

R&D tax subsidies are higher for SMEs than large firms

22

Evaluate R&D tax credits to determine efficient subsidy rates for small and large firms.

1. Central government.Source: OECD (2016), R&D tax Incentives; Design and Evidence.

23

KEY RECOMMENDATIONS

24

Reducing financial stability risks

• Continue to tighten macro-prudential measures and target them regionally, including through increasing capital requirements in regions with high house price-to-income ratios, as planned.

25

Making growth stronger, greener and more inclusive

• Increase federal investment in physical infrastructure, social housing, education and innovation, as planned

• Continue towards sharing more of the fruits of growth with Canada's Indigenous Peoples through providing more resources for their education, training, health care, housing, entrepreneurship and environmental infrastructure servicing their communities, as planned

• Canadian governments should act on their recent Vancouver declaration to ensure that an adequate price is placed on carbon emissions across the country to allow Canada to meet its international commitments.

26

Raising productivity

• Reduce foreign ownership restrictions in air transportation on a reciprocal basis and in telecoms and broadcasting, where cultural objectives could be achieved by other means.

• Develop more east-west interconnections through provincial cooperation when there is an economic case to do so. Liberalise the generation and distribution segments to encourage wholesale and retail competition in jurisdictions that have not done so yet.

• Broaden the AIT's sectoral coverage as much as possible. Seek to reconcile remaining regulatory differences (possibly via mutual recognition). Establish a pan-Canadian regulatory cooperation council. Raise monetary penalties for non-compliance, and expedite dispute resolution, which remains protracted.

27

Raising productivity (continued)

• Review small business taxation (e.g. in the context of the recently announced federal tax expenditure review) to identify clear market failures and the policy instruments best suited to addressing them.

• Phase out remaining federal tax credits for provincial LSVCCs, as previously planned, and explore whether to make greater use of funds that operate like private, independent, limited partnership venture capital funds, as was the case with the Venture Capital Action Plan.

More Information…

Disclaimers:

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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