Institute urges Canadians and their leaders to turn up the volume in discussions of Canada's widening prosperity gap with the United States

    Institute for Competitiveness & Prosperity proposes an aggressive agenda
    for increasing Canada's prosperity and argues that doing nothing is not a
    worthy option

    TORONTO, March 8 /CNW/ - Canadians need to step up to the challenge of
closing our prosperity gap with the United States by 2020. With the likelihood
of a federal and several provincial elections over the next 18 months,
Canadians will have the opportunity to discuss and debate the importance of
the prosperity gap and ways to narrow it. The Institute for Competitiveness &
Prosperity in its Report on Canada 2007, Agenda for Canada's prosperity,
released today at the Conference on Canada's Prosperity Challenge, proposes a
prosperity agenda as a way of invigorating the debate.
    Canada's economy is one of the world's most successful; and most signs -
low unemployment rates, solidly performing stock market, and a strong Canadian
dollar - reinforce this. But it is not meeting its full potential. More
worrisome, two decades ago, Gross Domestic Product (GDP) per capita in Canada
was only $3,300 (constant 2005 dollars) below - or 10 percent behind that in
the United States. Over the past two decades, we have drifted further behind
US performance - and Canada now trails the United States by $9,200 or
18 percent. GDP measures the value created by workers and firms in Canada from
the human, physical, and natural resources in the country.
    Roger Martin, Dean of the Joseph L. Rotman School of Management at the
University of Toronto and Chairman of the Institute expressed the concern
that, "Canada's stealthily slow drift of under achievement could erode our
economic strength, while most Canadians remain unaware of the problem." With
current trends in Canada's economic performance, it is possible that the
prosperity gap could nearly double to over $17,000 per capita by 2020. "That's
why doing nothing is not a worthy option," said Martin.
    On the positive side, Martin added, "Closing this prosperity gap would
have real benefits for Canadian families." On average, each family would gain
$11,900 in disposable, after tax income - every year. Governments across
Canada would generate an additional $108 billion in revenue every year. This
added revenue potential would easily pay for the kind of spending increases
that are being proposed around the country and still leave room for the
biggest tax cut in Canadian history by a wide margin.
    The Institute's Agenda for Canada's prosperity highlights the significant
changes required in attitudes, investment patterns, motivations to do
business, and market and governance structures across the country.
    As Martin said, "We are calling for a shifting of Canadians' overall
attitude from collective complacency to a shared determination to close the
prosperity gap. If federal and provincial party platforms over the past few
elections are any guide to public attitudes, it's clear that issues related to
our competitiveness, productivity, and prosperity are not seen as centrally
important to the public. We need to raise the volume on these issues."
    Lagging investment is a major factor in the prosperity gap, and the
Institute continues to urge a shift from consuming today's resources to
investing in future prosperity. Our business leaders need to increase their
investment in machinery, equipment, and software, particularly information and
communications technology (ICT). Our federal, provincial, and local
governments have been increasing public spending on health care and social
services at the expense of investments in education and infrastructure. We
need to rebalance spending priorities. Individuals, especially the young, need
to ensure they get as much education as possible. The report praised
initiatives by some provinces to increase the age when students can quit
    Our tax system needs to be smarter to motivate business entrepreneurship,
creativity, and innovation. Canada has among the highest tax rate on business
investment in the world. A smarter tax system would encourage more business
investment to increase the number of high paying jobs in Canada. As Martin
observed, "most other governments around the world understand that taxing
business investment at high rates is just counter productive. Here in Canada
we should shift from being laggards to innovators in tax reform." Among the
Institute's recommendations are for provincial governments to eliminate
immediately the tax on capital where it still exists; to convert the existing
provincial sales tax systems where they still exist to a value added tax like
the GST; and for the federal and provincial governments to work together to
attack features of the tax and social benefit clawback system that impose
punitive effective tax rates on lower income individuals and families working
to climb the economic ladder.
    Finally, the Institute makes recommendations to strengthen market and
governance structures to enhance prosperity. "Our governments have done a good
job in providing the basic support for a competitive economy - including
decent infrastructure and good primary and secondary education. But they need
to enhance areas of more specialized support, especially to improve the
quality of venture capital financing innovative firms and to graduate more
students with business degrees." The Institute also calls for reduced
regulation of industries to enhance competitive pressure in them, thereby
increasing innovation, productivity, and prosperity. In addition, it proposes
more negotiations to develop bilateral trade deals to enhance market potential
for our industries as well as providing greater competitive pressure to
increase innovation and productivity.
    Some of our current governance structures in Canada can inhibit
productivity growth, and the Institute urges the federal and provincial
governments to focus fiscal federalism discussions on how they can strengthen
competitiveness and prosperity in all regions of Canada. Martin said, "We
should be trying to make the pie bigger rather than debating how to divide the
    The Institute makes specific recommendations in its 2020 Challenge:
Agenda for Canada's prosperity.

               Challenge 2020: Agenda for Canada's prosperity

    Attitudes: From collective complacency to shared determination to close
    the gap

    -   Recognize imperative for closing prosperity gap
    -   Commit to taking the extra steps to increase our productivity and our
        capacity for innovation and upgrading

    Investment: From consumption today to investment for tomorrow

    -   Increase investment in machinery and equipment, particularly
        information and communications technology
    -   Encourage Canadian youth to invest in their educational attainment
    -   Increase investment in post secondary education
    -   Rebalance government spending away from consumption to investment

    Motivations: From unwise taxation to smart taxation

    -   Increase Capital Cost Allowances to match economic depreciation
    -   Eliminate the capital tax in Canada where it still exists
    -   Convert provincial sales tax to a value added tax, where applicable
    -   Lower perversely high marginal tax rates for individual Canadians
    -   Assess radical new approaches to taxation
    -   Reduce or eliminate Scientific Research and Experimental Development
        (SR&ED) and focus on reducing taxes on business investment overall

    Structures: From general support to specialized support and competitive

    -   Continue to improve the quality of venture capital
    -   Increase business education
    -   Reduce regulation to increase competitive pressure
    -   Reduce counter-productive labour regulations
    -   Continue to pursue bilateral free trade agreements
    -   Rebalance fiscal federalism to encourage investment in have-not
    -   Introduce employer experience rating to Employment Insurance

    The complete report can be downloaded directly from:

    About the Institute for Competitiveness & Prosperity

    The Institute is an independent not-for-profit organization established
in 2001 to serve as the research arm of Ontario's Task Force on
Competitiveness, Productivity, and Economic Progress. The Institute and the
Task Force are supported through the Ministry of Economic Development and

For further information:

For further information: James Milway, Executive Director of the
Institute for Competitiveness & Prosperity at (416) 920-1921 ext. 222

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