Productivity Drowns in Regulations and Lack of GDP Targets

Post 22 | How to Improve Canada's Productivity and Growth

A recent news article caught my attention entitled, “Ottawa Launches Consultation for Federal Plastics Registry” that further explains, “Ottawa has announced plans for a national registry that would require companies to report their plastic production in a bid to reach the federal government’s goal of zero plastic waste by 2030.” [Epoch Times]

While I find it hard to restrain myself from writing a full article on this inanity, it prompted a connected set of issues worth exploration - namely the intersection of excess regulations, lagging productivity and runaway government growth.

This exploration then surfaced a related fact I had not previously considered – that we don’t define national targets for Gross Domestic Product (GDP).

This post will explore both topics, then tie them together with some pragmatic solutions.

Throttled by regulations and paperwork

Let’s look at four seemingly disconnected examples to illustrate a point.

Beyond the debate of whether carbon taxation is necessary or effective, there is one question that plagued me on this topic – what does it cost to administer the carbon tax? That was finally answered December 2023 in response to a Freedom of Information request from a Conservative MP - $199M between 2019-21, staffed by 465 bureaucrats – all for a revenue neutral program that produces nothing.

Building on a 2020 Patients Before Paperwork study by the Nova Scotia government looking for efficiencies in their medical system, the Canadian Taxpayers Federation published an extrapolated 2023 Report. “Our analysis finds that across Canada, physicians are spending 18.5 million hours each year on unnecessary administrative work - the equivalent of 55.6 million patient visits. By setting a target to reduce physician red tape by 10%, governments across Canada could reduce physician fatigue and burnout, improve the quality of patient care, and save the equivalent of 5.5 million patient visits a year.”

The government owned Trans Mountain Pipeline is running six times over budget at $31B and five years behind schedule – much due to regulatory and consultation delays. Recent months have seen yet another delay of possibly two more years that would add another $2B. The Canada Energy Regulator (CER), an agency of Natural Resources Canada, rejected a variance request to allow a reduction of pipe diameter through the final 2.3 kms of the project due to difficulty in drilling through hard rock. While it may be resolved sooner and we don’t know all the details as CER cites environmental concerns, delays will cost us $200M per month and tens of millions in foregone revenues.

The recent omnibus Bill C-47 quietly reclassified all natural health products in Canada to now enforce similar regulations upon them as pharmaceuticals under the Food and Drug Act (FDA) administered by Health Canada. Expectations are that government costs to regulate the industry will be partly passed on to manufacturers, new labelling and testing will be implemented, and non-compliance will result in significant fines. This will all have a chilling effect on the supplement and natural health industry, likely driving some out of business, reducing consumer choice and inflating prices. And why is this needed - when consumer safety is vastly better in the natural health industry than for the 3400 pharmaceutical drugs registered in Canada, and our recent experience with Covid shots instills little confidence in our government’s regulatory oversight capabilities?

More generally, our 1.2 million Small Medium Enterprises (SMEs) report they are swamped in permits, forms, licenses, regulations and compliance issues. Meanwhile, publicly traded corporations are further weighed down with regulatory reporting including Environmental, Social and Governance (ESG) guidelines that require millions of dollars and armies of personnel and external consultants - against non-standard reporting metrics and resulting in vague outcomes.

What are the common threads through all this?

Excess regulation and paperwork kills efficiency, eats up resources, impedes productivity and slows growth.

Meanwhile, it requires a legion of bureaucrats on the backend that adds to our government’s relentless growth (now 275,000 federal employees).

This then feeds the vicious cycle of government spending and bloat, and diversion of valuable taxpayer money away from critical areas, such as our military, infrastructure, and core industries that produce revenue.

In a world where we complain of limited capital and human resources, misapplication of valuable assets has a huge knock-on effect.

Think about that when you next read about a national plastics registry. What value will it create? Will it help or further suppress our productivity? What will it cost businesses to comply? How much taxpayer money to administer? And how many more government employees?

Productivity and GDP - By the numbers

If a country’s productivity tells a story of its trajectory and probable future, and where GDP is one of the best proxies for productivity, Canada has some big challenges.

This is not just a partisan story as our trend of GDP decline occurred through the Mulroney and Harper Conservative administrations, as it did through the Liberal Chretien and now Trudeau years. Since 1961 we have been hitting lower highs and lower lows in GDP and our productivity has broadly mapped to this decline (2022 GDP was $2.14T).

Even so, recent years of Trudeau’s gross inattention to economic fundamentals, massive overspending, heaps of new regulations and mandates, and a demonization of our core industries has exacerbated the downward trend, not even accounting for the destructiveness of Covid-related policies.

The Coalition for a Better Future, co-chaired by Lisa Raitt and Anne McClellan presented their October 2023 Report to the House of Commons Finance Committee by summarizing, “…on a per capita basis, our economy has not only stalled but is contracting. Real GDP per capita has fallen four straight quarters, and we are producing less per person today than in 2018.” Further, “On labour productivity, the amount of output generated per hour worked looks even worse. That metric has fallen 11 of the last 12 quarters, and productivity numbers in the first half of this year are below what they were in the final six months of 2014. If things don’t change, we’ll soon be talking about a lost decade of productivity.”

Government spending accounts for 40-45% of our country’s GDP, where GDP is the value of all goods and services produced. But some, like the Macdonald-Laurier Institute argue that taxes and regulations push the government’s real contribution nearer to 64%. Either way, strip out government spending from GDP calculations particularly the massive intervention of the past few years, and it does not tell the tale of a robust private sector economy.

In a December Globe & Mail article respected economist David Rosenberg wrote, “When you adjust for the immigration-fueled +2.7% population boom, what this means is that the economy, in real per-capita terms, has contracted -2.2% over the past four quarters. You can only camouflage the dismal economic reality via unprecedented inbound migration flows for so long. Putting this dismal economic situation into its proper context, Canadian GDP growth, given this population boom, “should be” expanding at over a +4% pace. But it isn’t — it is as flat as a beavertail.”

This all confirms the same worrying reality – that Canada’s GDP and productivity are continuing to fall, despite historic government spending and population growth. 

What are our targets?

The past few years have raised our awareness of inflation targets, where we know that the Bank of Canada aims for 2-3%. And we hear about preferred labour and unemployment rates, along with data on every manner of spending.

Last year, the government introduced two fancy terms to defend their profligate spending - fiscal anchors and fiscal guardrails. In this vein, their new favorite is to talk of measuring our Debt-to-GDP ratio (using net debt which is offset by the value of CPP and QPP pension assets) against other G7 countries, though measuring against other spendthrifts is rarely a quality argument – “Well, at least we’re not as bad as…”

The proposed Debt-to-GDP ratio does not confer economic health - it merely defines an approximate redline before a debt bloodbath. And yet, the government isn’t even meeting this selective target as they balloon quarterly deficits, drive our gross debt to 106%, and we stare at monstrous debt servicing costs of $35B (rising to $61B by 2028-29), while GDP continues falling.

You cannot hit a target you cannot see, and you cannot see a target you do not have. [Zig Ziglar]

GDP can be considered our national top line revenue, and is also the numerator in key measures of an economy’s health - yet we don’t actually have defined GDP targets. Out of 128 uses of the term “GDP” in the Fall Economic Statement including references to private sector GDP forecasts and projections, there is not a single statement about a committed government target. This may seem like a nitpick but is far from it.

A target is something you clearly set out, plan for and are judged against.

Forecasts and projections are how you measure progress along the way.

Reports are how you account for your success or failure at the end of a period.

Consider that our country is being fundamentally reshaped around targets such as carbon dioxide emissions, electric vehicle production and uptake, and gender and ethnicity quotas, while blowing through deficit, debt and immigration targets - all which our government is happy to commit us. Yet, they are silent on putting a stake in the ground regarding the one key economic target that is fundamental to grow our nation, raise standard of living, and underpin judicious program spending - GDP.

Meanwhile, they empathetically report it after-the-fact, as if they aren’t actually responsible for its outcome.

Six pragmatic principles

In looking to fixes, the bald truth is that solutions are not singular, nor will they be fast to take hold once implemented.

Smarter people than I write regularly about how to cure our productivity and fiscal decline, but I’ll still jump bravely into the breach with six pragmatic ideas - perhaps not revelatory, but hopefully useful. They fall mostly into broad principles because I believe we first need a mindset shift by government about their role - but also a change in our own expectations, as we’ve become too accustomed to their long arm in everything.

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Shift the government’s purpose to creating the conditions for growth, jobs and prosperity - not creating those things per se. It is not the federal government’s job to build houses, regulate grocery prices, create equity, or lay a heavy hand on the industry winners and losers for the future through mandates, regulations and corporate subsidies. No government is smart enough to create an economy of their own design - but should rightly celebrate if they are successful in enabling an environment in which a free market can thrive.

Boldly set 5, 10 and 20 year GDP targets and state them publicly. Then make key investment and tax policy decisions with those as guides. Make GDP and productivity targets part of our national economic lexicon, changing the public dialogue to think about revenue production rather than always talking about spending.

In addition to GDP, we need a handful of key growth/production targets to rally around - such as investments in Canadian R&D to produce unique IP, assets per worker, or SME exports - to name just a few potentials. They must be shared publicly and treated as foundational national investments. Government should work to these metrics as guiding stars when considering where to invest taxpayer money - then get out of the way and let the free market pick up.

Make the ongoing reduction of regulations and red tape a central principle of government. Make hard cuts to the myriad processes that impede businesses and look even closer at every regulatory body. This may create a few holes that need patching and we need to accept that as a small price to pay. The capital, human resources and efficiency we’ll free up will have outsized benefits in comparison. Oh - and eliminate the Competition Bureau.

Double down on our natural gas, mining and oil industries - in tone, infrastructure and investment. Export our natural gas to replace record high coal burning. And focus on mining and processing the raw metals needed for additive energy development by slashing regulatory impediments to greenlighting projects - before subsidizing tens of billions in foreign companies to make products that will rely on foreign raw materials.

Stop competing with the United States in a corporate subsidy arms-race, driven by their outsized subsidy policies. It is a foolish and losing game.

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There are countless other specific areas worthy of economic action including phasing out marketing boards and federal supply management, rolling back federal childcare and dentalcare programs, taking a machete to half our Crown Corporations each with their own Board and administration, slashing the number of federal departments and much more - but I’ve covered some in previous posts, and others will be left for another day.

Stay tuned and stay pragmatic.