From the Financial Post
OTTAWA — Never mind Europe or the United States, Canada’s got a number of its own economic problems, according a panel of experts who gathered Thursday in Ottawa.
An inflated housing market, an under-utilization of the country’s human resources and growing gaps between rich and poor were just a few of the issues brought up in a discussion that took place on Parliament Hill, organized by the Canadian Centre for Policy Alternatives.
Patti Croft, recently retired from being chief economist for RBC Global Asset Management, cited the risk of a housing bubble as among Canada’s biggest issues. Part of the problem, she said, is exceptionally low mortgage rates, due to the Bank of Canada’s low interest rate of one per cent — a level intended to support the economy.
“Historically, after a long period of low interest rates, what lies ahead is some kind of speculative excess,” she said.
The central bank’s rate has not been more than one per cent in more than three years, going as low as 0.25% for more than a year as it fought off the effects of a recession.
There was some concern expressed about the economic effects of the federal government’s coming spending cuts, but Ms. Croft said “the greater concern is the looming housing bubble that we see, particularly in cities like Toronto and Vancouver, because I think that is where the speculative excesses lie.”
Jim Stanford, economist with the Canadian Auto Worker union, cited a failure to make use of Canada’s labour market as the biggest issue facing the economy.
“Our GDP is at least $100-billion below what its potential should be, just on the basis of pre-recession trends in per-capita GDP,” he said.
“Remember, if we were to close that output gap and actually produce what we’re capable of, over a third of that flows directly to government in the form of revenue of various kinds, which is the real way to bring the deficit down and pay off our debts.”
Alice Nakamura, a professor of finance with the University of Alberta, agreed the economy would benefit if more use were made of the country’s available labour.
“We’ve got aging populations, we’ve got a shortage of people to provide all sorts of care, but we don’t have the dollars to pay for that,” she said.
“There’s still a lot of things that need to be done that could use the talents of people who can’t necessarily do a lot of math or handle computers, but we don’t have the buying power out there to request those things.”
In terms of how to deal with such issues, Ms. Nakamura said: “I don’t think it will just fix it to have government spend more money. I actually don’t know what the solutions are to those problems.”
There was some disagreement on how effective it would be to use taxation to more fairly distribute income in Canada. Mr. Stanford was in support of higher taxes on the wealthiest Canadians.
“It’s shocking that (U.S. Republican leadership candidate) Mitt Romney pays 15% tax, and frankly, if rich investors in Canada were forced to disclose their income-tax returns for political reasons, like he was, it wouldn’t be very much different in Canada,” Mr. Stanford said.
Ms. Croft, on the other hand, rejected the notion of raising taxes directly on wealthy individuals or corporations, arguing it would lead to much of both leaving the country. She did, however, express support for higher consumption taxes, which she said in effect would get more money out of rich people.
She also called for better access to education, training that more closely matches the economy’s needs and more child care as things that would help Canada’s low- and middle-income earners.