Annual Canada report card OECD urges federal government to give priority to debt and tax reduction

A new report is urging the federal government to monitor the implementation and impact of recent programs such as the Canada Research Chairs Program, the Canada Foundation for Innovation and Government On-Line. More generally, it suggests a reconsideration of the current practice of allocating half of any budget surplus to new spending initiatives, and increasing the weight given to tax and debt reduction.

Science & technology and research have been beneficiaries of many of these new initiatives under current Liberal fiscal policy, with a wide range of programs aimed at rectifying deficiencies created by years of cutbacks and changing social and economic conditions.

The calls for spending restraint and accelerated tax reduction come from the Organization for Economic Co-operation and Development (OECD) and are contained in its latest annual Economic Survey of Canada. While the analysis finds plenty to praise in Liberal fiscal policy, notes of caution are sprinkled throughout the document including the dictate that extreme care should be taken "to avoid new initiatives with long-term spending implications in response to short-term revenue windfalls". Given its clear preference for the loosening of market forces, the OECD opts for the use of economic instruments to ensure long-term growth and prosperity.

"It would be desirable to develop a structure for the transparent assessment of the benefits arising from spending initiatives, allowing an appraisal on how these weigh against those generated by tax and debt reduction," states the document. It also expresses concern that environmental degradation and resource depletion could sideswipe Canada in the long term, and recommends the use of economic incentives and instruments to ensure sustainability.

In general, the survey paints a rosy picture of Canada's current economic climate, pointing to a declining public debt-to-GDP ratio, and fiscal policies underlying the nation's improved economic performance. But it notes that the gains Canada has made are not as dramatic as those enjoyed by many of its trading partners.

"Recent federal budgets have introduced measures aimed at promoting innovation and taking advantage of opportunities presented by the new economy. But a fuller and more rapid exploitation of the possibilities opened up by new technologies is likely to require continued efforts to complete the structural reform agenda," states the report.

The OECD also urges the lowering of taxes applied to service-sector firms to "remove the bias against knowledge-based activities, thereby levelling the playing field among enterprises, while serving to complement other measures that may help to boost innovation, such as R&D incentives."

ENVIRONMENTAL CONCERNS

In the area of environmental sustainability, the report notes that Canada has taken steps to monitor and report on progress, although implementation of those policies remains problematic. It singles out the issue of water and deems it "under-priced" in Canada, resulting in its intensive use, particularly in agriculture. It pushes for a move towards an "economic pricing" of water while at the same time endorsing a "carefully designed" water export licensing system.

"Voluntary agreements have not proved up to the task of dealing with the resource and environmental challenges on their own," states the report. "The resulting intensive exploitation of non-renewable resources also has environmental consequences in the form of polluting substances and greenhouse gas emissions."

The report states that greenhouse gas emissions are currently 13% higher than in 1990. It contends that Canada's Kyoto commitment to reduce emissions to 6% below 1990 levels before 2012 is becoming an increasingly difficult objective and recommends quick action to encourage a reduction in fossil fuel consumption.

Rather than recommending the use of science and technology to accelerate the development of alternative fuels, or employing "command-and-control-type regulations", the OECD opts for relying "primarily on a cost-effective instrument such as a tradeable5 permit scheme".

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