‘Heart attack serious’: Will Carney’s debut budget deal with Canada’s pressing productivity problem?

Rudyard Griffiths and Sean Speer discuss Carney’s budget debut tomorrow and what Canada needs most in response to the Trump administration tariffs. The conversation centres on Canada’s deepening productivity crisis, and whether Ottawa’s approach of picking winners through large-scale industrial projects addresses the fundamental issues of declining per capita GDP and living standards. They argue that the government should instead focus on tax reforms and reducing barriers that would unleash entrepreneurship across thousands of small and medium-sized businesses. You can listen to this episode on Amazon, Apple, and Spotify. Program Transcript This is an automated transcript. Please check against delivery. RUDYARD GRIFFITHS: 24 hours and counting to Mark Carney’s debut budget. It’s a big one, both in terms of dollar numbers and impact on the country. To help break it all down, I’m joined by my co founder and editor at large here at the Hub, Sean Speer. SEAN SPEER: Great to connect, Rudyard. RUDYARD GRIFFITHS: Sean, what’s the one thing that you are looking for in this budget? If Shawn Speier held the pen at the Ministry of Finance, what do you think we need must have in this budget to kind of put Canada on a trajectory that this country so urgently wants and needs? SEAN SPEER: Yeah, it’s something we’ve talked a lot about over the past several months, Rudyard, and that is that the proper response to the Trump administration’s tariffs is not retaliatory tariffs. It’s not traveling around the world trying to gin up half a percentage point or something of trade diversification in some of these other markets. It is about getting serious concerning Canada’s economic competitiveness that the biggest threat represented by the Trump administration’s tariffs aren’t slightly higher prices for Canadian consumers or whatever. It is the pull that the tariffs represent to capital production within Canada’s borders. We’ve seen a couple of high profile examples. We’ve talked for instance, previously about Stellantis moving something like $15 billion over the coming years in capital production to the United States. This represents a crisis that’s not just about the immediacy of job losses and so on, but a much longer term threat to Canadian production and industrial capacity. So for that reason, Rudyard, it seems to me a sign that the government understands the magnitude of the threat would be a nod to some pretty radical thinking around corporate taxation, capital taxation, regulation, the types of things you need to do to make sure that Canada remains competitive in the face of of Trump’s provocations. RUDYARD GRIFFITHS: Yeah, I agree with that. Take it in a slightly different direction. I think if this budget could do anything, it’s to take the first real and important steps to addressing our productivity crisis. Right now, on a per capita basis, per citizen basis, Americans are about 30% more productive than we are in terms of the utilization of their labor and more importantly, technology and manufacturing and whatever they can bring to make each unit of labor produce more. We have fallen behind this last lost decade from the Americans. And it’s not just the Americans, it’s even other lagging economies globally like the United Kingdom, like parts of Europe. Our productivity growth is really at the bottom of the G7 and this has big impacts on our quality of life. I think it’s it has created a somewhat spooky feeling out there in the economy of real fragility, of the risk of Canada’s living standards and promise slipping away. So Sean, if productivity was the problem to solve for this budget, how would we do it? What would you look for for the Carney government to put in this budget to once and for all show that a federal government is like heart attack, serious about dealing with our falling productivity, falling per capita gdp, the economic metrics that show that we are getting poorer, not richer than we think, to quote a certain bank’s slogan for its customers. SEAN SPEER: Yeah, the way you get more productivity is pretty straightforward. It comes from more capital investment. And the only way you get more capital investment, Roger, is if businesses and firms feel like they’re facing heightened competition. Competition for labor, competition for customers, competition for market share. So at some level, the first order of business has to be about opening up the various parts of Canada’s economy that remain shielded from competition and in turn dilute or diminish the incentive for companies to invest in productivity enhancing technologies. We’re probably not going to see that in a budget for various reasons, but a nod in the direction of trying to support greater capital investment. Whether it’s the idea we’ve talked about in the past of a capital gains rollover, I like the idea, Rudyard, of increasing the capital gains exemption, maybe lowering the capital gains rate altogether. Those would be the types of policies that signaled the government understands what we need to see out of businesses and investors is an increase in capital investment such that we are taking advantage of technologies that are out there in the marketplace to make our workers more productive. We’ve published research in recent months, for instance, that shows that notwithstanding Canada’s early lead on conceiving of and developing AI technology, we’re a real laggard when it comes to AI usage in different parts of the economy. So in a nutshell, I think from a budgetary point of view, focusing on trying to boost capital investment by using the tax system would be one way to get at that productivity problem that, as you say, is really at the heart of, of Canada’s economic predicament. RUDYARD GRIFFITHS: But Sean, aren’t we likely to see from this Prime Minister instead a a big focus? It’s been telegraphed again and again on investment, that is Ottawa picking sectors, picking projects. And I don’t know, maybe I’m a little dim witted. I’m just having a hard time understanding, yes, you get a big sugar high, you get a big fiscal stimulus when those projects are built it may take years, but eventually when they are built, you’ll get your GDP going up and if your population growth has slowed, your per capita GDP is gonna increase. But I worry, Sean, that this focus, this seeming like obsession with investment, large projects, Ottawa picking winners, I just wonder how does that really get at these fundamental issues that are eating away at our standard of living, at our prosperity, at our competitiveness, which are not five or six key things that you can pull a rifle out and shoot at. Instead, it’s about thousands of businesses, tens of thousands of businesses. How they are thinking about investment, capital opportunity I just don’t see. I mean, God bless if we do a 15, 20 billion dollars carbon sequestration plant in, in Alberta and maybe that gets us a pipeline, but what does that do for a business here in Ontario? How does that make them feel that there’s suddenly an economy to invest in, an economy where they feel that there are returns on capital that are justify the risks that they need to take, that the government wants them to take to ultimately increase productivity, increase per capita wealth? SEAN SPEER: Yeah, I agree with everything you just said, Roger, in a way, not purposefully, but I think we’ve kind of distinguished ourselves from other center right commentators on economic policy over the past several months. I think there was such a reaction to the Trudeau government’s disinterest and at times outright harm to Canada’s resource economy that the Carney government’s focus on resource based projects, including of course in Bill C5, has generated a lot of goodwill. It was supported incidentally in the House of Commons by the Conservatives. And don’t get me wrong, expediting the regulatory processes for our major resource projects is hugely important for the economy. We published a great article today by Derek Hunter from Calgary who talked about the significance of Canada’s resource economy. You’re not going to find any disagreement with me at all, but it almost feels like we risk overcorrecting that the Trudeau government was so inattentive to the resource economy and now it seems to be the only thing we’re thinking and talking about. And as you say, particularly in the face of the Trump administration tariff threats and the inaccess to the US market. What I think we ought to be focused on is the fact that our business exits are too high and our business entries are too low, that, you know, solving that problem, increasing entrepreneurship, increasing small business formation, increasing investment, as you say, in thousands of businesses across the economy, is the way that we achieve a durable, sustainable economic growth and actually protect ourselves from the Trump administration. RUDYARD GRIFFITHS: Yeah. So look, I mean, one thing I’d love to see in the budget tomorrow, but I’m not holding my breath, is the cap on the small business tax rate has been frozen at half a million dollars for over 15 years. It’s not been adjusted for inflation. It’s worth effectively a quarter to a third what it was when that half a million dollar cap before you move to the full corporate tax rate on your small business income. So there’s just one of, I’m sure countless examples where you could engage in tax expenditures that would be costly to the government, that would run up the deficit. I don’t, I’m not denying that, but to me would have the effect of 1000 flowers blooming. And I guess what I’m concerned about, Sean, I’ll let you have the last word in this hub hit, is that we seem to be once again indexing for this kind of Ottawa obsession with picking winners and losers. And we can go back to the cluster strategy. We’ve seen every single iteration of this through multiple governments of all partisan stripes, to be honest, of Ottawa being unable to say to itself, you know what, what if we just got out of the way? What if we used our deficit not to pick winners and losers on borrowed money that will ultimately have a negative impact on future growth as more and more capital in Canada goes towards servicing debt of all types, including government debt. What if we got out of the way and yes, racked up a big deficit, but in service of that deficit, we finally thought of ourselves that Canadians are industrious, that they will figure this out. We will actually have faith to some extent in the country and in the businessmen and women, especially towards the smaller and medium sized range corporations that are so important to create the larger corporations of the future and just to sustain broad based employability across the country in all regions and all sectors. And I just wonder, Sean, why budget after budget, party after party, we just seem to. Ottawa seems to always go back to the same playbook. It may be written in different prose, it may have a different cover, it may be signed by a different author, but fundamentally it’s the same approach and it seems to be getting the same result, which is low productivity growth or falling per capita GDP and declining living standards and a declining future for Canada. SEAN SPEER: Yeah, you think the powers that be would be a bit chastened after the self evident failure of the EV strategy, which basically involved throwing good money after bad. And yet, as you say, we seem inclined to want to redo that over again, but this time in housing and in major projects and in artificial intelligence and all of these various other areas. And yet all of the attention paid to those types of shiny baubles has actually taken Canadian policymakers eye off the ball of the fundamentals of economic competitiveness. You’ve talked about all of the ways in which we are increasingly uncompetitive when it comes to the taxation of capital, the treatment of expensing and the tax system and so on. One thing that really struck me last week, Rudyard, that we had published an excellent piece by Alicia Planincic from the Business Council of Alberta that showed that when it comes to business taxation, Canada has fallen in the OECD business tax competitive rankings from 22nd to 27th. That would have been unacceptable in normal circumstances, but in the face of the threat that we’re facing from the Trump administration, it is just irresponsible to chase all of these areas of interest in the immediate term and forget the fundamentals of competitiveness, growth and productivity. And so signaling that the government gets it isn’t going to be solved in a single budget. But as you say, it would be a departure from economic policymaking for some time. Yeah. RUDYARD GRIFFITHS: Well, we will cover the budget in detail tomorrow as soon as we’re out of the lockups and able to access this text. We’ve got a whole bunch of terrific economists, Sean, standing by, ready to help us and help Hub readers and viewers and listeners understand the importance of the budget. So we urge people to come back to the Hub throughout the day. Tomorrow, Tuesday and definitely after 4:30, we will be pushing content out, rapid budget reaction. Looking forward to doing that with you tomorrow. SEAN SPEER: Yeah, we focused high mindedly on the big economic questions facing the government today, but we haven’t even got into the possibility, Rudyard, that 24, 48 hours from now we could be talking about a possible election. So there’s a lot to cover in the next 24 hours. You get the sense it’s a big moment for Canadian politics. I look forward to covering it with you 100%. RUDYARD GRIFFITHS: Let’s do it. Until then, ladies and gentlemen, bye bye.