Thank you, Mr. Chair. It's a real privilege to be back before this committee again.
When I last testified before you, last month, I reiterated my warning that Canada stood at a crossroads in terms of a macroeconomic situation. That is still very much the case now. I won't repeat all of the data points from my last testimony, which are in your records, but I'll summarize them briefly and make a few quick new observations.
First, as I pointed out, both GDP growth per capita and its underlying driver, productivity growth, are languishing in Canada compared to in the U.S. That imperils the well-being of average Canadians now and into the future.
Recall that in 1960, our average income per person in Canada was basically the same as in the U.S. Now we have less than three-quarters the income per person compared to our friends south of the border. That's really quite extraordinary. Unemployment, likewise, is higher in Canada than in the U.S. due to structural factors.
The reason for this divergence, in my judgment, is the outsized role of the government in the economy of Canada, which very much relates to the budget. As I noted, increased government spending is crowding out private investment. The government now accounts for about a quarter of Canada's GDP—again, in a so-called market economy, that is an extraordinary number—while total business and investment are only about 8%. It's no wonder that our economy is so unproductive, given how socialized we've become.
The recent increase in the burden of the capital gains tax—and the carbon tax, for that matter—can only make this worse.
I believe the finance minister said recently that the budget paves the way for the Bank of Canada to make interest rate cuts. I must confess that I find this logic hard to understand. We've had an expansionary fiscal deficit, which creates its own inflation pressures. In other words, fiscal policy is inflationary, while the Bank of Canada is trying to contract. It's not a good balance, as Governor Macklem himself has acknowledged, very tactfully saying the government and the bank are rowing in opposite directions. I think it's clear what he means.
This budget, if anything, is going to stay the hand of the Bank of Canada's governing council. I think, rather than having a rate cut next month to provide some relief to many of us labouring under mortgages and debt, they may hold off until July, or perhaps even until the fall, because of the extra inflationary pressure the fiscal deficit is creating.
What should we do? I'll be very brief. As I testified last fall and again earlier this spring, it's really about going back to basics. It's a basic message. The three pillars of good economic policy—fiscal, monetary and good, sound regulation—are all badly in need of repair. We've had a fiscal binge in Canada.
Monetary policy, likewise, has been on a bender. The economy is over-regulated. It's stifling innovation, new business creation and private sector investment, and it's creating high-entry barriers for new entrants.
Our economy is highly concentrated, with a handful of dominant, politically powerful and entrenched incumbent firms in all major sectors. They're in everything from cellphone services to groceries, legacy media, banking and airlines—you name it. It’s no wonder that we pay higher prices and get poorer service than our friends in the U.S. for just about everything, and that we are so unproductive.
Lastly, as I reminded members the last time I was here, it’s worth remembering that at the beginning of the 20th century, Argentina had about the same per capita income as the U.S. and Canada, but after 120 years of economic mismanagement, its income is only about one-third of that of the U.S. Ours, as I said, is now only three-quarters. Unless we mend our ways, we risk going the way of Argentina.
Thank you, Mr. Chair.