Mr. Chairman, members of the committee, it's great to be back.
At the risk of sounding vain, I want to remind you that in 2010 we said that the government would be back in balance by 2015, so I think we got that call more or less right.
I want to focus on three things: our short-term outlook, our longer term economic outlook which is quite different, and then give you some free advice on what budgets should look like going ahead.
We actually just finished this afternoon our short-term outlook, and we're forecasting growth this year of 2.2% in Canada, a fairly weak job growth of only 1%, and unemployment getting stuck kind of in the 7% range. Next year will be a better year. We have attached ourselves to a recovering U.S. economy. Our view is that Canada will grow at 2.6% next year. You'll see kind of a good news story across the board.
The one area that really troubles me is the very weak growth in private investment. We're actually showing a negative sign this year in private investment. It's not because investment is not growing, but because the cost of investing is rising. We have a 5% nominal growth rate for private investment built into our forecast, but the cost of imported capital goods has gone up because the dollar has gone down.
People tend to cheer when the dollar goes down in value. I like to point out the fact that it's good for some people and not so good for other folks. It's actually raising the cost right now of private investment in the country, which is not such a good thing. I'm not sure there's much we can do about it. We're forecasting growth in private investment next year of around 5%, really driven by recovery in exports to the United States. The U.S. recovery is really critical to Canada's ongoing success, but I think there's lots of evidence that the U.S. is showing a really strong durable private sector recovery after six years of turmoil, so it's about time.
If I switch to our long-term forecast, it's really driven by the fundamentals—demographics, private investment, productivity growth—and there the story from the Conference Board is more sobering. We're forecasting that Canada will really only grow at about 2% in real terms after 2016. We're entering a period where the impact of demographics is really going to eat away at the capacity of our economy to grow. We're basically losing a whole percentage point in growth on a sustained basis. If you add inflation on top of that, because governments tax nominal income, nominal growth, we're looking at a world where nominal income is growing less than 4%. That means we're going to have to have a very disciplined budget process on a going forward basis, frankly from here to the horizon. That's probably not going to change for 20 years or longer. If it changes, it may go down rather than up.
What do we do about it? Well, I actually agree with Brian. We think that we should be thinking about budgets now than investing growth. Growth should become the core theme of budget making on a going forward basis. For us that means three things.
First of all, I would strongly encourage this committee to take on the role of being the champions of tax reform in Canada, not cutting taxes, rethinking the tax system to spur growth. That means simplifying, clarifying, taxing the right things. I can talk more about that if you want during the question and answer session.
Second, I think Canada has systematically underinvested in infrastructure for probably 25 or 30 years now, so it's time to catch up. We know that the provinces are doing it. We know that the federal government has already set aside funds going forward for infrastructure investment, but if you drive across this country, if you fly across this country, if you use the water system, you know that we have to put in a lot more money, probably hundreds of billions of dollars, to get our infrastructure back to the point where it can support the economy.
Third, we would support investment in people, meaning skills, education, building human capital to really have a modern economy going forward.
If I'm allowed, Mr. Chairman, I have one more thought. If I had to choose between debt reduction and cutting taxes, I would be much in favour of reducing debt further. I think the debt ratios are coming down, but to really have a sustained growth path for our economy, we have to get public debt under control federally and provincially. If I had a dollar left over at the end of the year, I would use it to pay down debt.