OECD gives Canadian economy largely positive assessment in latest survey

Canada should take action to boost productivity and introduce policies for improving "small business dynamism" to sustainably move towards non-resource production, says a bi-annual report on the nation's economy from the Organisation for Economic Co-operation and Development (OECD).

The 2016 OECD Economic Survey offers a prescriptive analysis of the nation's economic underpinnings from an overheated housing market to regulated industries, while noting that exchange rate depreciation, flexible labour markets and monetary and fiscal policies are supporting the shift to an economy based more on knowledge than natural resources.

"This shift would be facilitated by increasing product market competition and strengthening small business dynamism," states the report, adding that the federal government's investment in physical infrastructure, education and innovation is "astute".

Productivity is cited as the "most important source" of higher incomes, living standards and well-being. It warns that Canada's productivity growth is weak in relation to comparable countries, although it acknowledges that "it is not clear what the major causes are". To reverse the trend, it recommends expanding public support for private sector-led venture capital funds, deregulation of network sectors such as telecommunications, broadcasting, air transportation and electricity and small business dynamism.

"Dynamism can be reflected in high rates of firm creation, exit and productivity growth ... Entry can be viewed as a form of experimentation that introduces new ideas, business models and technologies into the marketplace," states the report. "More than half of multi-factor productivity growth at the industry level is attributable to new entrants (and) in-or-out dynamics would speed the reallocation of resources to more productive firms and the diffusion of new technologies."

OECD also advises Ottawa to "phase out remaining federal tax credits for" Labour Sponsored Venture Capital Corporations", in contrast to measures introduced in the last federal Budget (R$, April 4/16).

The tax credit level of the Scientific Research & Experimental Development program is described as generous by international standards and OECD questions its effectiveness. It encourages an evaluation of federal R&D subsidy policies to ensure they are providing value for money.

Federal debt levels are deemed sustainable for "at least several decades".

FMI:www.oecd.org/canada/economic-survey-canada.htm.

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