Canada must avoid the ‘2% growth trap,’ when pandemic ends, Scotia CEO says

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The Bank of Nova Scotia’s chief executive says Canada should avoid the pre-pandemic “trap” of middling economic growth once COVID-19 is beaten, proposing more financial assistance for child care, investment-boosting grants for businesses and fewer obstacles to trade between provinces to help expand the economy.

Scotiabank CEO Brian Porter on Tuesday said Canada had been seeing slower growth even before the pandemic, as gross domestic product grew at an average annual rate over the past 20 years of less than two per cent. 

Canada is not the only advanced economy experiencing this trend, Porter noted, listing “convenience and complacency” among the chief reasons for the sluggish growth. 

“As a country, we should not accept the ‘two-per-cent growth trap,’” the Scotiabank CEO said during a speech at the lender’s virtual annual shareholders meeting. “We have an opportunity today to pursue policies that ensure that Canada does not just go back to pre-pandemic growth, but achieves an even higher and better growth for a sustained period.”

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Porter said Scotiabank has been researching this topic for some time, and that they are making three policy recommendations that would boost economic growth, employment and prosperity. Those calls also come as the federal government is set to table a budget on April 19 that will contain more details about how Prime Minister Justin Trudeau aims to lead Canada out of the COVID-19 pandemic. 

The first policy being advocated by Scotiabank regards child care, with Porter saying that more often than not it is women who shelve their career goals to ensure such care is provided. 

Porter has previouslyraised the issue, and he noted Scotiabank is recommending an annual top-up of $5,000 per child to the federal Canada Child Benefit, which provides a monthly payment to eligible families that varies depending on income. Furthermore, Scotiabank is advocating that the Canada child tax credit be boosted to $20,000 per child a year, up from $8,000, allowing parents to fully deduct preschool child-care costs. 

“Providing greater flexibility to families to find child-care arrangements that are best suited for them is good for women, it’s good for families and it’s good for the country,” Porter said. 

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Second on the bank’s list is a one-time, matching grant to entice businesses to invest in machinery, equipment and intellectual property. A capital-investment grant could allow a small business to digitize their operations, Porter noted, or let a medium-sized firm upgrade a factory to make it more efficient. 

Those two policies, according to the CEO, could make a “meaningful impact” on the direction of Canada’s economy. The investment incentive alone, he said, could boost that investment as a share of GDP by up to one percentage point, adding $100 billion to the economy over five years.

That incentive has been on Scotiabank’s radar for some time as well. Areport from the bank’s economics unit last September said a matching grant of 25 to 50 per cent would cost somewhere around $25 billion to $50 billion a year, based on the annual amount of investment in machinery, equipment and IP since 2010.

“While large, this is substantially less than (the Canada Emergency Response Benefit) or (the Canada Emergency Wage Subsidy) funds paid out this year, for instance, and could easily be financed as these programs roll off,” Scotiabank economists Jean-François Perrault and Rebekah Young wrote. “It should also yield significant economic payoffs over time, as the government would only disburse funds if investments are actually undertaken.”

The last policy Porter raised was tearing down interprovincial trade barriers, which has been a longstandinggoal for many in Canada. Porter noted that a working paper from the International Monetary Fundestimated total liberalization of internal trade in goods could increase Canada’s GDP per capita by almost four per cent a year. 

“Let’s prioritize free trade between provinces and territories in the same way we prioritize free trade between countries,” Porter said. “There is considerable evidence that these three policy recommendations would play an important role in strengthening our economy at this critical time, and they would help ensure Canada does not fall back into the two-per-cent trap.”