Thursday, March 03, 2005

Canada's standard of living slips

This is from today's Globe & Mail.

Although the measurement of standard of living does not measure other aspects of the economy other than productivity and consumption (i.e. life expectancy, education, level of provety, etc.), this should be a warning sign for the Martin government.

We need to be more productive in order to keep pace with our neighbour south of the border in terms of standard of living. Else, we'll be the true "Mexico of the North" in a decade or so!!

Canada's standard of living slips

Falling even further behind the U.S.


Thursday, March 3, 2005 Updated at 6:39 AM EST

From Thursday's Globe and Mail
Ottawa — Canada's standard of living fell further behind the United States during the past two years and the gap is expected to grow over the next two, partly because Ottawa did not do enough in its recent budget to boost the economy, according to a leading economic forecaster.

In the first comprehensive economic forecast since last week's federal budget, Global Insight (Canada) Ltd. says Canada's standard of living had slipped to 84 per cent of that in the U.S. by the end of 2004 from 87 per cent two years earlier. That three-percentage-point increase in the gap reversed a 1999-2002 trend, when it narrowed to 13 percentage points from 17.

Dale Orr, chief economist with Global Insight (Canada), said he largely attributes the recent widening of the gap to the appreciation of the Canadian dollar, which has made Canadian exports about 30 per cent more expensive in the critical U.S. market.

The first year of the four-year period also saw the Canadian economy battered by one-time events such as the SARS outbreak, the discovery of a case of bovine spongiform encephalopathy in Alberta and the power blackout in Ontario, he added. "We have the potential to do a lot better."

But Mr. Orr and other economists don't expect that to happen, at least in relation to the U.S. standard of living, over the next couple of years. The U.S. economy is expected to outpace its Canadian counterpart this year and next, which Mr. Orr forecasts will expand the standard-of-living gap by another 1.6 percentage points.

That means the gap will have widened by 4.6 percentage points over the four-year period, or 35.4 per cent of the initial 2002 gap of 13 percentage points.

Economists say Canada can improve its economic growth and standard of living by boosting economic productivity through measures such as corporate and personal income tax cuts, more aggressive writeoff schedules for capital investments and smart investments in such areas as transportation and education.

Critics say last week's federal budget was short on measures to boost Canada's productivity and therefore its standard of living. They cited the document's tepid tax cuts, some of which don't kick in for three years, and big increases to social spending.

"We should be paying much more attention to economic growth," Mr. Orr said in an interview.

Canada had narrowed the standard-of-living gap, as measured by gross domestic product per capita, with the United States to about 13 percentage points about three years ago, after falling to as much as 18 percentage points in 1993.

An expected slump in Canadian economic growth is expected to raise another hurdle, at least in the short term. Global Insight's update forecasts growth for 2005 of 2.6 per cent, compared with the 2.9 per cent forecast in Finance Minister Ralph Goodale's budget.

Jack Mintz, president of the C.D. Howe Institute, an economic think tank, said the U.S. standard of living has also been improving strongly in recent years because the corporate sector made massive investments in new machinery in the late-1990s

Those investments have since led to improved productivity, and therefore a higher standard of living, Mr. Mintz said.

He said the federal budget, which featured dramatic spending increases and minimal tax cuts, was a step in the wrong direction because there were few measures to boost the economy. "I think our productivity has always been a problem."

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