Canada’s post-pandemic recovery plan should aim to combat two longstanding economic weaknesses — lower female workforce participation and weak business productivity — Scotia Economics suggests.
In a new report, the bank’s economists highlight two key areas for the federal government to address in its forthcoming economic recovery plan that “have the potential to fundamentally reshape our growth prospects by removing impediments to work and strengthening business investment.”
In particular, the report said that the government should aim to improve female employment by significantly increasing household transfers tied to childcare expenses and boosting tax credits for early childhood education.
“There are a variety of ways this could be delivered but a simple approach would be to top-up the Canada Child Benefit (CCB), but instead of means-testing the increment, make it contingent on a child being in a daycare program,” the report said.
Providing households with $5,000 per child “would still fall short of actual childcare costs in Canada, but it would mirror the new Canada Caregiving Benefit, providing women with symmetrical incentives to return to the labour force.”
At the same time, the report said that the government should substantially increase the Canada Childcare Tax Credit from the current $8,000 per child per year to $20,000.
“These combined measures still fall short of a universal, low fee childcare program but they would be substantial first steps in negotiating a pan-Canadian approach with provinces that would address supply constraints to affordable childcare options,” the report said.
“Moreover, increasing female participation in the labour force by lowering out-of-pocket childcare costs will increase disposable income and indirectly increase housing affordability.”
Indeed, the report noted that bringing female workforce participation in line with male participation could add more than half a million workers — which the International Monetary Fund has estimated could boost Canada’s GDP levels by 4% over the medium term.
The report proposed that the government also aim to address Canada’s persistent productivity problem by introducing a “temporary 25%-matching grant for investment in machinery, equipment and intellectual property” to drive productivity-enhancing business spending.
The report said that these grants could be geared to favour certain types of investment — such as those targeted to developing a greener economy or addressing diversity goals — or to favour businesses adapting to the post-pandemic world.
“This would be a costly undertaking, one which would have seemed prohibitively expensive in the pre-Covid world,” the report said. However, it would cost much less than CERB or CEWS “and could easily be financed as these programs roll off.”
“It should also yield significant economic payoffs over time, as the government would only disburse funds if investments are actually undertaken,” the report noted.
In total, these steps would be expensive, “in the range of $40–65 billion combined,” the report said, adding that the measures “should lift Canada’s growth potential and thus strengthen government revenues over time.”
“Canada’s net debt would still rank among the lowest in G7 countries, while low interest rates offer an opportunity to undertake such investments,” the report added.
The report also recommended that the government commit to holding net debt-to-GDP at 65% for the next few years as a “signal of discipline and responsibility.”