The Globe and Mail’s Peter Mansbridge is reporting on Canada’s economic prospects, and his answer is the same as any other economist: “The biggest threat to the Canadian economy is probably the Federal Reserve.”
The Canadian dollar has lost almost 80 per cent against the U.S. dollar over the past decade, and Canada is currently suffering from a massive housing bust and a global trade imbalance.
It’s a problem that will take years to reverse, if not decades.
But it’s not just that Canada is facing a housing bust, it’s that it is facing one that threatens its economy.
Canada’s labour force participation rate has plummeted to its lowest point in decades, a phenomenon that is expected to continue as the baby boomers retire.
The unemployment rate has also plummeted, with the lowest rate in the industrialized world.
“We are experiencing a crisis in the economy, the most severe since the Great Depression,” said former Bank of Canada governor Mark Carney in his latest memoir, “The Price of Inequality.”
“The Canadian economy has suffered from the Great Recession and is in the process of reaping the full cost of that shock.”
“If you are looking at the growth of the economy in the U, you have seen the growth in manufacturing, in services, and in manufacturing that has been the main driver of growth for most of the past 20 years,” Carney said.
“And we are in a crisis here.”
“The Canadian middle class is suffering, and the middle class in Canada is going to have to take some painful decisions,” he said.
“The real question is whether Canada’s middle class will be able to cope, whether it will be as resilient as the rest of the world.
We have seen a lot of growth in the manufacturing sector, but it has been driven by low-skilled workers, low-wage workers.
And that has created an economic challenge that the middle classes are facing.”
Carney, the Canadian economist, says the solution to this problem is to reduce inequality.
In his memoir, Carney proposes a “flat tax” on the top one per cent of income earners, to make up for their economic stagnation.
He says the middle-income bracket is worth $180,000 for a family of four.
“That’s the one that would take care of most people,” he told Mansbridge.
“If you think about it, if we did the flat tax, that would give $20,000 to every family that was at the top of the income distribution, and that would be a big hit to the top 10 per cent.
It would be the largest tax cut for the middle and working class in Canadian history.””
It is very much an economic policy, and I think that it has to be supported by structural changes, and not just tax cuts,” he continued.
“Because what is going on in Canada right now is not just about one country or one group of people.
It is about a system that is very unequal, and it has got to change.”
While the federal government has announced a new tax cut plan for Canadians in April, Carney argues that the best way to tackle the problem is through a more progressive tax system.
The new Liberal government will cut the top tax rate to 35 per cent, with a top marginal rate of 39 per cent and a top rate of 30 per cent for individuals.
“I think the bottom line is that you have to go after inequality, and you have got to go at the root causes of the problem,” Carney told Mansfield.
“You can’t just say, ‘Oh, it is the middle income group that is suffering.
Well, we can reduce the top rate to the 35 per ceteris paribus.
Let’s lower the top to 30 per’.””
If the top earners in Canada are doing so well, we have got a lot more money to spare,” Carney added.
“So, if you have this middle class who is struggling, I think we have to help them, but we also have to give them some assistance, and they have to do it in the form of tax cuts.”
“The bottom line,” Carney concluded, “is that you can’t simply cut the rate to 30, and say, well, it works for everybody.”
“I do think the Federal Government has a responsibility to do something,” Carney continued.
He also pointed out that Canada’s government has not taken any steps to tackle a number of the problems he described, such as tax evasion.
“I think that in this country, the idea that the government should simply sit back and allow people to evade taxes and make billions of dollars in profit by hiding the income of their employees is not a very good idea.”
“We have to change the way we do business here in Canada, because there is no room for complacency in this world,” he concluded.