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Saturday, October 21, 2023

Canada’s productivity crisis linked to government overspending

Dubious government investments are stunting our standard of living

While government policies can benefit societies and economies, they often produce the opposite results.

Recent concerns highlight Canada’s worrying trend of dismal productivity growth and growth prospects, with several international bodies predicting minimal growth in Canadians’ real (adjusted for inflation) personal income over the next 30 years ↗ (an entire generation).

To address this productivity slump, governmental strategies have varied.

One strategy has emphasized workers’ skills, with authorities advocating for youth to pursue marketable technical trades rather than conventional university degrees.

Another strategy has been to foster a more extensive, intensive, and robust innovation ‘ecosystem’ coupled with venture capital and institutional investor funding. Addressing permitting obstacles and other regulatory impediments are another approach.

Yet, despite the potential of these strategies, the persistent actions of both federal and provincial governments challenge productivity growth. Notably, these governments often allocate extensive taxpayer funds towards projects with minimal returns on investment.

Over the years, provincial utilities like BC Hydro, Manitoba Hydro, and Nalcor (an umbrella company for Newfoundland and Labrador Hydro) have seen significant overruns. The financial commitment to these projects, such as the Site C dam, Keeyask, Bipole III, and Muskrat Falls, far surpassed initial projections.

A staggering $43.2 billion was spent, compared to initial expectations of $23.9 billion, to produce just a couple of gigawatts of ‘cheap’ power – just enough for a million households. For perspective, the same funds could have been channelled into nuclear energy, producing more power and less environmental harm.

In addition to these massive provincial governmental blunders, the federal government lavished $35 billion in tax relief subsidies for just three electric vehicle (EV) battery plants. According to the federal Parliamentary Budget Officer, two of these plants ‘might’ be paid off in ‘as soon as’ 20 years.

Topping it off is Ottawa’s purchase and expansion of the Trans Mountain Pipeline, where government-induced regulatory obstacles continue to explode costs. Ottawa has now spent a staggering $30.9 billion to expand the pipeline, almost six times the original estimate of $5.3 billion. It will be impossible to recoup anything near what is being spent. For more than eighty percent of its route, the new, parallel Trans Mountain line follows the existing line: an additional enormous expense accrued from massive mismanagement.

A common thread weaving through these projects is the government’s willingness to finance ventures that initially seemed economically questionable. State-owned enterprises often prioritize political motives over profitability – a theme evident in the electric vehicle and Trans Mountain decisions. Perhaps the renowned work “How Big Things Get Done ↗” would be more aptly named “How Big Things Get Botched” in Canada.

Ultimately, a nation’s economic vitality hinges on the collective performance of its businesses and people. Investments in underperforming projects yield minimal returns. The consequence of such political spending is reduced productivity and diminished wealth per individual.

Unfortunately, our kids will bear the brunt of these decisions, likely facing a compromised standard of living.

By Ian Madsen

Ian Madsen is the Senior Policy Analyst at the Frontier Centre for Public Policy.

Troy Media

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