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Archived - Chapter 1
A Strong Canada in a Changing World

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Strategic Context

Purpose: To Improve Our Quality of Life and Make Canada a World Leader for Today and Future Generations

Just as successful businesses and organizations pursue clear, focused strategies to succeed, Canada must also be guided by a comprehensive long-term economic plan.

This is Advantage Canada: Building a Strong Economy for Canadians. This plan will achieve a higher standard of living and better quality of life for Canadians as the world economy continues to transform. It is based on the core belief that Canada can be a world leader today and for future generations.

Advantage Canada is rooted in the realities of global competition and Canada's existing strengths and economic challenges. It is visionary, yet concrete. It will serve as a framework for government decision making for years to come. And it is fundamentally based on the understanding that the passion, ingenuity and dreams of individuals ultimately make economies strong.

The New Ground Rules for Success in Global Markets

Over the past 20 years, the rise of emerging economies, along with reduced trade barriers and lower telecommunications and transportation costs, has transformed the global economy. Production of goods and services is now organized along global supply chains, spread across countries according to their comparative advantage.

Advantage Canadais based on a clear recognition that the modern world economy has changed. From Canada's perspective, the new ground rules for success can be summarized in three core, fundamental truths:

  • People and capital are mobile.
  • Talented, creative people are the most critical asset to a successful national economy.
  • A favourable business environment is essential to retaining, attracting and growing high-quality, innovative enterprises and encouraging them to compete with the very best.

Much analysis has gone into determining the key ingredients for success in this new global economy. Think tanks, academics and organizations such as the Organisation for Economic Co-operation and Development (OECD) have all considered this subject extensively. The economic and societal foundations that provide the conditions for long-term economic growth are well understood. Indeed, there is widespread consensus that the fundamental determinants of long-term economic growth in developed countries are:

  • A skilled and highly educated workforce.
  • High rates of private and public investment in research and innovation.
  • Modern infrastructure.
  • High rates of business investment in machinery and equipment.

In turn, private investments in these key determinants of growth are encouraged by:

  • Low public debt and low and stable inflation.
  • Low taxes on work, savings and business investment.
  • A high-quality and accessible education system.
  • A competitive business environment, including effective regulation and competition policies.
  • Stability and efficiency in the financial system.
  • Openness to trade and investment.
  • Flexible labour markets.

Governments can help create the right conditions and opportunities for businesses and organizations, and ultimately people, to succeed. This leads to a vibrant and healthy economy. Advantage Canada is designed to reduce the barriers to investment and help Canadians and Canadian businesses build on their current strengths.

Canada's Competitive Position

A Proud Past, A Brighter Future

Canada is great because Canadians made it great. We are building from a position of strength. We are the eighth largest economy, and we have the seventh highest standard of living in the world.

Canadians are ambitious, and our people, businesses and organizations have the ability and the confidence to succeed on the world stage. Indeed, our many strengths provide the foundation for success in today's global economy:

  • Canada's job creation has been the strongest in the G7 over the past decade. Our unemployment rate is close to a 30-year low and the share of the adult population holding jobs is near a record high.
  • Canadians are highly educated and Canada leads in primary scientific research. Canadians pursue post-secondary education at a higher rate than anybody else, and Canada invests proportionately more on primary scientific research than all other G7 countries.
  • Canada is in a solid fiscal position. The federal debt has fallen by $81 billion from its peak, and debt interest costs-which peaked at $49.4 billion annually in 1995-96-have been reduced to $33.8 billion. Canada's total government net debt-to-GDP ratio has decreased from the second highest in the G7 in the mid-1990s to the lowest now.
  • We are an emerging energy superpower. At a time of global shortages, we are already ranked fifth in the world in total energy production, seventh in oil production, third in natural gas production and first in hydroelectric generation.

Challenges Advantage Canada Will Address

While Canada's many strengths form the foundation for excellence and success in today's modern economy, there are barriers and challenges we cannot ignore if we are to improve our quality of life and become a world leader for today and future generations. These barriers and challenges include:

  • High taxes that are discouraging investment and initiative. Income taxes on individuals and businesses in Canada remain high by international standards. Personal and corporate income taxes as a percentage of GDP are higher in Canada than in all other G7 countries.
  • Business investment in equipment, innovation and training. Businesses in other OECD countries are investing on average more in research and development, and machinery and equipment than do our businesses. Participation in workplace training is also higher in other leading OECD countries.
  • The need for skilled labour. There are shortages of skilled labour in a number of provinces and territories. These shortages are particularly acute in Alberta and Saskatchewan, where more than one-quarter of manufacturers report that labour scarcity is limiting operations.[1]
  • Our aging population. The decline in the share of the population of working age is common to most industrialized countries, but projections by the United Nations show that over the next 25 years, Canada will experience the second largest decline among G7 countries and the fourth largest among all OECD countries. An aging population will add to the shortages of labour that are already developing in our economy, putting downward pressure on living standards. At the same time, the aging of our society will create additional demand for health and social services.

New Challenges and Opportunities

Two additional factors merit a separate, more in-depth analysis because they create both challenges and opportunities for Canada. These are the rise of emerging markets and the strength of the Canadian dollar.

New Emerging Economies

Emerging economies such as China, India and Brazil, with their large pools of inexpensive labour, are becoming increasingly important in the world economy. These countries have traditionally had low labour costs, and their labour costs will remain lower than Canada's for the foreseeable future. This labour cost advantage is being maximized by increasingly effective trade, and information and financial linkages with the global economy.

Freer trade, advances in communications technology and relatively inexpensive transportation costs have helped firms to locate where they get the greatest advantage. Many labour-intensive activities have moved to emerging economies, while developed countries are increasingly specializing in higher-value-added activities-such as research and development, engineering and product design-that tend to be more capital- and knowledge-intensive.

The rise of emerging economies creates both challenges and new opportunities for Canada. In the near term, emerging economies have increased the competitive pressure on low-skilled, labour-intensive sectors. Over time, the ability of developing countries to compete in higher-value-added activities will also increase.

Canada will need to continue to innovate and shift to higher-value-added activities to maintain a competitive advantage and create better jobs. We cannot simply rely on our traditional strengths or past expertise. We must continue to renew and maintain a long-term comparative advantage by specializing in higher-value-added parts of the global supply chain.

The rise of emerging economies brings significant opportunities for Canada.

  • First of all, rising incomes in these economies are creating new markets for Canadian exports of finished goods and services.
  • Secondly, the increasing integration of the global economy has brought with it a shift to lower-cost production, which has driven down prices for business inputs and consumer goods.
  • Thirdly, as these emerging economies develop, their demand for raw materials will increase. This increased demand for oil, base metals and other commodities helps Canadian exporters as commodity prices increase. For example, from 2002 to 2005, China accounted for more than one-quarter of the increase in global oil demand and nearly 80 per cent of the increase in global demand for all base metals.

Canadian businesses must take advantage of these opportunities, and Canadian governments must do what they can to help open markets and ensure that we have the right economic and social conditions to stay ahead.

The Strength of the Canadian Dollar

The Canadian dollar appreciated by 40 per cent against the U.S. dollar between the end of 2002 and early November 2006. This has created significant challenges for Canada's exporters, particularly in the manufacturing sector.

Overall, our economy has adjusted well to the higher Canadian dollar. While the decline in manufacturing employment has clearly been difficult for the workers affected and their families, many new jobs have been created in high-wage industries such as scientific and technical services, professional services, finance, insurance and real estate, and information and culture.

Within the manufacturing sector, machinery and equipment costs have come down thanks to our higher dollar. As a result, manufacturing investment is up strongly, and manufacturing output is higher than in 2002.

This is a positive trend, and it shows that Canadian businesses are replacing the artificial advantages that a lower dollar provided with real productivity improvements. This must continue. Canadian businesses must relentlessly seek efficiency, productivity and quality improvements-while specializing in higher-value-added activities.

Principles and Advantages

The analysis of Canada's competitive position in the world points to key issues that require strategic focus. Advantage Canada's principles address these issues and form the basis of the policies that follow within this plan. These are principles for the long term, and they will serve as prisms through which consistent policy decisions can be made to deliver on the key objectives of the Advantage Canada plan.

Advantage Canada's principles are:

  • Focusing government. Government will be focused on what it does best. It will be responsible in its spending, efficient in its operations, effective in its results and accountable to taxpayers (Chapter 2).
  • Creating new opportunities and choices for people. Government will create incentives for people to excel-right here at home. We will reduce taxes and invest in education, training and transition to work opportunities so Canadians can achieve their potential and have the choices they want (Chapter 3).
  • Investing for sustainable growth. Government will invest and seek partnerships with the provinces and the private sector in strategic areas that contribute to strong economies-including primary scientific research, a clean environment and modern infrastructure (Chapter 4).
  • Freeing businesses to grow and succeed. Government will create the right economic conditions to encourage firms to invest and flourish (Chapter 5).

Strategic success also means making choices that are most likely to deliver results. Five advantages will be instrumental in improving Canadians' quality of life. These five advantages are summarized below, and will be referenced throughout the Advantage Canada plan.

Five Canadian Advantages

Advantage Canada is about making Canada a world leader for today and future generations. It will achieve a better quality of life for Canadians by creating five Canadian advantages:

1. Tax Advantage:

  • Reduce taxes for all Canadians and establish the lowest tax rate on new business investment in the G7. 

2. Fiscal Advantage:

  • Eliminate Canada's total government net debt in less than a generation.

3. Entrepreneurial Advantage:

  • Create a business environment that unlocks private investment by reducing taxes, unnecessary regulation and red tape.

4. Knowledge Advantage:

  • Create the best-educated, most-skilled and most flexible workforce in the world.

5. Infrastructure Advantage:

  • Build modern infrastructure to ensure the seamless flow of people, goods and services.

The Advantage Canada Plan

Advantage Canada is about ideas, and it is about acting on those ideas. Based on Advantage Canada's principles, the policies and priorities that follow provide an action plan for government. These policies and priorities are bold. They are complementary-creating a whole that is greater than the sum of its parts.

Together, Canadians and their government can create a sustainable advantage for our country by building a stronger economy. History shows that change creates both challenges and opportunities. The most successful societies respond by capitalizing on their strengths to turn change to their advantage.

This plan outlines proposals of Canada's New Government to create conditions where Canadian people and families can achieve their full potential, where we can create the wealth to invest in things that matter-such as first-class health care and education and strong communities. As Canadians, working with common purpose, we will be a shining example to the world of what a truly great, prosperous and compassionate nation can be.

1 Statistics Canada, Business Conditions Survey, third quarter (2006). [Return]

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