– The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies through research that is nonpartisan, evidence-based and subject to definitive expert review.
CANADA – Sagging national saving, undermined by government deficits, threaten Canada’s future economic prosperity, according to a new report from the C.D. Howe Institute. In “Enduring Virtues: Saving and Investing as National Priorities in 2017,” author William B.P. Robson, President and CEO of the C.D. Howe Institute, underlines the importance of saving and investment in economic growth, and warns that Canada is falling short.
“We Canadians are consuming like there’s no tomorrow,” says Robson. “Our national saving rate has plummeted and government deficits are making it worse. We need more saving and investment to boost national wealth and future incomes,” he adds.
The report explains how forgoing consumption today provides resources for the housing, capital, infrastructure and investments abroad that boost living standards tomorrow. But over the year to the third quarter of 2016, Canadians consumed 98 percent of national disposable income. At 2 percent, our national saving rate was way below the average above 7 percent recorded since the mid-1990s.
The problem is not so much our individual behaviour: households saved almost $1,700 per person. But losses by businesses – and, more important, governments running deficits – reduced national saving to barely $900 per Canadian.
“Such weak saving meant that, to finance net investment that totalled $3,200 per Canadian, we had to borrow more than $2,300 per Canadian abroad,” notes Robson. Not necessarily bad – but about $2,800 of that investment was in housing. “Capital spending by businesses and governments – projects likelier to improve our capacity to export and service foreign debt – barely exceeded depreciation.”
While Robson urges improvements in policies, notably taxation, that could boost private-sector saving, his main message for governments is that they should fix their own budgets. Most of what governments call “investment” is transfer payments and consumption.
Federal capital spending does not even match depreciation: Ottawa’s net investment is negative. And he points out that rhetoric about running deficits to make investments is nonsense. Capital spending creates assets, not liabilities. When governments run deficits, consuming more than tax revenue net of transfers and interest payments can cover, their deficits erode national net worth – as they are doing now.
“We need less focus on near-term GDP and boosting consumption,” concludes Robson. “Higher saving and investment, as households, through businesses and Canadian governments, is our surest path to a more prosperous future.”
