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Chapter 1
Introduction
This Plan presents a broad economic policy framework that will guide the Government of Canada over the coming years in fostering employment, economic growth and prosperity. The Plan builds the foundation to realize a vision of Canada where "…our quality of life will be second to none."[1]
We start from a position of strength. The hard work of Canadians over the past decade has built on an enviable record of fiscal stability, economic performance and social cohesion. Uniquely positioned to benefit from global trends, Canada is a prosperous nation, confident of its place in the world.
As individuals, each Canadian has an important role to play in achieving this vision. Together, Canadians can make it happen.
Standard of Living Is a Key Determinant
of Quality of Life
Public policy’s core strategic objective is to create opportunities for every Canadian to achieve personal fulfillment through work and leisure in a free and just society. In this context, the ultimate goal of economic policy is to improve our quality of life by increasing living standards. Quality of life is a broad concept of social well-being that depends on a range of factors: living standards and health, the environment, culture, families, national security and global citizenship. While this Plan focuses on improving living standards, it is part of a broader framework.
Living standards and other determinants of quality of life are interrelated. For example, higher living standards generate the resources that society needs to address the other factors that determine our well-being. Ultimately, quality of life is especially important to ensure that the best and the brightest are attracted to and remain in Canada. Overall quality of life contributes to our economic prospects. For example, high-quality health care provides a competitive advantage to Canadian business due to a healthy workforce and low, stable employer costs. Our approach will continue to put the patient at the centre of reform. The Government will work with the provinces to sustain a Canadian health care advantage by increasing the timeliness and predictability of the high-quality service.
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Budgets 2004 and 2005: Recent Progress in Promoting Quality of Life
Health : Building on the health accords of 2000 and 2003, all First Ministers signed the 10-Year Plan to Strengthen Health Care in 2004, a plan that includes a commitment to improve access to publicly funded health care and reduce wait times for key services. In support of this plan, the federal government announced over $41 billion in new long-term funding for Canada’s health care system.Environment : In 2005 the federal government laid the foundation for Project Green, a comprehensive set of policies and programs aimed at supporting a sustainable environment and a more competitive economy. Budget 2005 provided important impetus for Project Green, including $4 billion towards the Government’s Climate Change Plan.Communities and Culture : The Government of Canada is committed to sustainable, creative, safe and secure communities. Budget 2004 announced the first major step to deliver the New Deal for Cities and Communities, providing $7 billion over 10 years by increasing the goods and services tax rebate to municipalities. Budget 2005 provided an additional $5 billion over five years for cities and communities based on a share of federal gas tax revenues. In addition to nearly $740 million since 2001, new funding totalling $860 million was announced in Budget 2005 for the Tomorrow Starts Today initiative, which supports Canadian arts and culture.Families :Building on the $965-million-per-year increase in the National Child Benefit supplement announced in Budget 2003, Budget 2005 allocated $5 billion over five years for the Early Learning and Child Care initiative. Budget 2005 also announced a $2.7-billion increase in the Guaranteed Income Supplement over five years for low-income seniors.Canada and the World : The 2005 International Policy Statement details Canada’s new priorities in the area of defence, diplomacy, development and trade. The policy builds on commitments announced in Budget 2005, including $3.4 billion for international assistance, and over $12 billion for defence, the largest increase in defence funding in 25 years. The Government has also allocated more than $9.3 billion for new security measures since 2001, including funding for Canada’s National Security Policy and for air and marine security, intelligence and policing, emergency preparedness, and border security. Since 2005 the Government has also invested $58 million towards pandemic influenza preparedness, including the purchase of antiviral drugs. |
Canadians Live and Work in a Changing Environment
As we refresh and strengthen our economic policy framework, we do so with the benefit of a robust economy and a sound fiscal position. As detailed in Chapter 2, through decisive actions and sacrifices made since 1994, Canadians have made tremendous progress. Since the federal deficit was eliminated in 1997, resources have been freed up and invested in key economic and social priorities.
Most importantly, Canadians have returned to work. Among the world-leading G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States), Canada is first in job creation since 1997, with overall participation in the labour market now at an all-time high and unemployment at a 30-year low. Over the same period, Canada experienced the second largest increase in average productivity growth compared to other G7 economies. Canada also led the G7 in the growth of living standards. Reinvestments in our families, homes, workplaces, institutions and public services were begun and are accelerating.
Today, the balance of economic power is shifting due to the simultaneous emergence of economic giants such as China and India, and the widespread adoption of transformative information and communications technologies. China is expected to become the world’s second largest economy by 2020, while India’s share of the world economy is on track to surpass that of Canada later in the next decade. But Canada is well placed to thrive in this new economic environment.
At the same time, like many other advanced economies, Canada faces an aging population. In future years, younger generations will comprise a smaller share of our population. As a result, automatically rising employment will soon no longer contribute to living standards growth. This demographic change will also test the strength of our public finances due to increased pressures on Canada’s health system and social programs.
Canada’s continued success will demand steadfastness in our response. As Canadians have shown over the past decade, with a focused plan we can meet challenges and seize new opportunities. This economic policy statement lays the groundwork for a confident, successful response.
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Canada’s Baby Boom Generation
"Looking ahead, as Canada’s baby boomers pass into retirement, the dependency ratio will rise and the working age population shrink in the absence of net inflows of migrants. Responding to these developments presents the country with two key challenges:
Organisation for Economic Co-operation and Development, |
Developing a Global Perspective
To succeed in the 21st century, Canadians must nurture a global perspective. This Plan takes a global perspective in several ways:
- It recognizes the acceleration of the globalization process resulting in part from the widespread application of information and communications technologies.
- It anticipates the profound reordering of the global economy wrought by the emergence of new economic giants such as China and India.
- It responds to the challenge of developing a cutting-edge knowledge economy under these circumstances by investing in people, creating the right investment environment, promoting innovation and facilitating the freer flow of people, goods, services and capital.
- It takes advantage of increased demand for natural resources to drive efficient development of our immense potential.
- It advances our responsibility to promote global environmental sustainability and responds to the increasing need for our industries to be as environmentally efficient as possible in order to compete internationally.
In its entirety, the Plan seeks to position Canada as a leader in the global economy.
Advancing From a Position of Strength
As we re-examine the objectives and directions of economic policy, there are reasons for renewed optimism. Initiatives since 1994 have given us the freedom to plan and act for the long term. This means that today we can prepare for the Canada we want over the next 15 years, rather than worrying about how to make ends meet tomorrow. This enviable position is the payoff from putting the deficit years behind us.
Canada is uniquely positioned to benefit from the profound reordering of the global economy due to our diverse and highly skilled population, openness to the world, immense resource potential and robust financial health. However, our success is not a birthright. To fully realize our potential and to provide every Canadian with the opportunities they deserve, we must take our economic performance to the next level.
At its core, this means creating opportunities for all Canadians. Specifically, we must ensure that everyone has the opportunity to acquire the necessary skills and no one faces insurmountable barriers to achieving personal fulfillment through work. This fundamental commitment to fairness must be complemented by an improvement in our productivity performance. Productivity is only a means, not an end in itself. A more productive economy is the only dependable route to better jobs, larger disposable incomes, improved living standards, and ultimately a higher quality of life for Canadians.
Progress in Living Standards Depends on Productivity
To boost living standards we must focus on improving productivity. Standard of living, commonly measured as GDP per capita, depends on the number of people working, the amount of time they work and the efficiency with which they work. At the margin, a change in any of the components translates into an equivalent change in living standards. Given that we are currently at a record-high rate of employment and Canada’s population will increasingly age in coming years, growth in employment will have a diminishing impact. Any significant future increase in the Canadian standard of living will come either from an increase in the average number of hours worked or in the output of our work effort.
We have a choice between working harder or working smarter.
Productivity Means Working Smarter
Working smarter simply means producing more with the same or even less effort. In a practical sense, evidence shows that improvements in living standards depend in large measure on investments in key areas that drive productivity and economic growth—people, physical capital and innovation. Indeed, economies that exhibit strong performance in all three areas are the most successful in generating new and better jobs and improved living standards. Equally important are government policies that support the development and interaction of these factors, including policies that set the right macroeconomic environment, encourage competition and promote efficient markets.
For Canadians, working smarter has been the foundation of our economic progress. In fact, productivity has proven to be by far the most important contributor, accounting for nearly 90 per cent of Canada’s improvement in living standards over the past 50 years. The income that Canadian workers earn and the resources available to public and private institutions will increasingly depend on continued advances in productivity.
Government Can Lead, but Success Requires Partnerships and a Plan
More than a decade of solid economic progress in Canada has shown that a government with a clear and resolutely implemented economic plan can help Canadians attain their personal and shared goals. However, the Government of Canada alone cannot guarantee economic success. Other orders of government also play an important role, and ultimately the decisions and efforts of all Canadians—collectively through governments, private firms, labour unions, non-profit organizations and as individuals—will determine our economic performance. All have contributed to our success since 1994. Additional progress will demand a cooperative effort, one where each and every Canadian contributes towards our national goals of economic prosperity and global achievement.
Government does have a unique responsibility to lead, a responsibility this government fully accepts. To be effective, the Government must focus its attention on those areas where it can have the greatest impact. This Plan identifies these priorities.
A Plan for Growth and Prosperity
Canadians can realistically aspire to have an economy that will support a quality of life second to none. This Plan sets out how we can attain this goal.
The balance of this paper analyzes in greater depth how productivity grows, and derives from this analysis the economic policy principles that will support the federal government’s role in making Canada a leader in quality of life. Chapters 2 and 3 provide the context by reviewing Canada’s achievements over the past decade and examining the new challenges and opportunities that we will face in coming years. The forward-looking elements of the Plan are outlined in the following chapters:
- Creating Opportunities for All Canadians
- . In response to key challenges, such as population aging and a changing economic environment, Chapter 4 examines measures needed to fully empower Canadians with the skills and adaptability we need to be completely successful.
- Advancing an Innovative Economy.
- Chapter 5 sets out a multi-pronged approach for enhancing Canada’s innovation performance. Innovation is an important driver of economic growth: it makes us more productive, generates new products, opens new markets and enhances competitiveness.
- At the Centre of Global Commerce and Networks.
- Countries that adopt a global approach to business benefit from stronger economic growth and better living standards. Chapter 6 examines Canada’s policies from a global perspective, focusing on access to international markets and supporting commercial networks.
- Building the Right Investment Environment.
- Chapter 7 examines the Government’s most important role in promoting economic prosperity: to create the right conditions for private investment. This means prudent fiscal management and sound monetary policies, fair, competitive and efficient taxation, smart regulation, efficient financial markets, a deeper Canadian economic union, and more productive government.
As subsequent chapters make clear, there is no simple solution to achieve sustainable prosperity. Rather, improving living standards and ultimately quality of life requires continued and unremitting progress on each interrelated element of the framework. Measures consistent with the policy directions put forward in this Plan are proposed in the accompanying 2005 Economic and Fiscal Update for inclusion in Budget 2006. Additional measures will be launched in subsequent budgets.
Address by Prime Minister Paul Martin, Gatineau, Quebec (September 20, 2005). [Return]
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