The federal government's next budget will in principle focus on growth, targeting certain sectors of the economy and stimulating innovation, if the recommendations of a group of experts to Canada's finance minister are to be believed.
Although growth and innovation are always welcome, there is nonetheless a right way and a wrong way to promote them. The right way is to allow companies themselves to invest, and to ensure the rules of the game are fair to all sectors of the economy. Aeronautics, mining, agriculture, energy, life sciences, manufacturing, services, and so on, must all be on equal footing.
Finance Minister Bill Morneau speaks to a reporter after delivering the previous budget on Parliament Hill in Ottawa Mar. 22, 2016. (Photo: Patrick Doyle/Reuters)
Growth and innovation are, of course, very laudable goals. It is thanks to growth and innovation, for instance, that life expectancy has gone from around 35 years in the early 1800s to over 80 years today.
Just since the 1950s, Canadians have gained a dozen years of life. Grandparents tend to live longer and get to see their grandchildren grow up.
What has happened? Simply put, we receive better care right from birth, and it lasts throughout our lives. Infant mortality has fallen, and treatments for cardiovascular diseases, cancers and diabetes have improved. We can live with or even cure diseases that were death sentences a generation or two ago.
This is not just a matter of chance, but the result of innovation, which has given us access to better treatments and drugs, and of growth, which has given us the means to afford them.
It is also thanks to growth and innovation that our standard of living has increased so dramatically over the same period, to the point that statistics have difficulty measuring it.
When governments get mixed up in investing in innovative projects, it is not for economic reasons, but for political, electoral ones.
The precise figure itself is not that important; what matters is that parents see their children living better and more comfortably than they themselves lived. But it gives us an idea of the effect of innovation and growth on our lives, beyond their strictly "economic" impact.
When governments get involved
Having said this, when governments try to actively create growth by supporting certain projects rather than others, or by investing public funds instead of letting companies invest and innovate, they can have the opposite effect. There are several reasons for this.
For one thing, it is impossible to predict the future. Certain companies will unfortunately invest in research and development for several years without any big breakthroughs. This is why we need innovation and growth policies that provide a level playing field for all companies and economic sectors, and that do not favour in advance potential losers to the detriment of eventual winners.
Even when the government does not choose winners and losers, it can be tempted to stimulate growth and innovation by itself investing. Even though it's hard to imagine governments that have trouble simply making sure their employees are paid correctly taking charge of complex decisions related to medical, pharmaceutical or telecommunications research, to name just a few sectors, governments find themselves making such decisions when they grant subsidies.
Growth and innovation are things that happen when the government gets out of the way, not when it has its hands in every pie.
This is the wrong way to do things. Studies demonstrate that an increase in public spending does not stimulate private spending, and even has the effect of reducing it substantially in most cases.
Public spending can create jobs in the public sector, but no sustainable employment in the private sector.
On the contrary, when the government competes less with the private sector in the recruiting of workers and the use of capital, private investment takes up the slack. It must also be noted that often, when governments get mixed up in investing in innovative projects, it is not for economic reasons, but for political, electoral ones.
If the federal government wants to promote growth and innovation in its next budget, it should remove the regulatory and fiscal hurdles that are a drag on investment and allow companies to do the investing, rather than intervene even more. Let's face it: growth and innovation are things that happen when the government gets out of the way, not when it has its hands in every pie.
Follow HuffPost Canada Blogs on Facebook
Also on HuffPost:
The Liberal government delivered its maiden budget Tuesday, March 22. A deficit of $29.4 billion in 2016-17, nearly three times the $10 billion promised during the fall election campaign, and a projected deficit of $17.7 billion in 2019-20 rather than the balanced budget that was promised in October. (Source: The Canadian Press)
One of the earmarks of the budget is a commitment to spending on aboriginal issues. This includes: - $2.6 billion over five years for primary and secondary education on First Nations reserves, including language and cultural programs, plus $969.4 million over five years for education infrastructure. - $1.2 billion over five years for social infrastructure for Aboriginal Peoples, including First Nations, Inuit and northern communities. - $10.4 million over three years for new women's shelters in First Nations communities, and $33.6 million over five years and $8.3 million ongoing for support services. - $40 million over two years for the inquiry into missing and murdered aboriginal women and girls. Read more here (Source: The Canadian Press)
The Liberals will be changing the structure of Canada's child benefits, ending income splitting and other tax credits for families and parents. This means: - $10 billion more over two years for a new Canada child benefit, absorbing and replacing both the Canada child tax benefit and the universal child care benefit. Targeted to low and middle-income families, the government says the new benefit provides an average increase of nearly $2,300 in 2016-17. - An end to income splitting for couples with children, the children's fitness tax credit and the children's arts tax credit. Read more here (Source: The Canadian Press)
The government will spend $2.5 billion over two years on a suite of changes, including reducing the required work experience for new entrants and re-entrants; halving the two-week waiting period; extending a pilot project to allow claimants to work while collecting benefits; simplifying job-search requirements; and extending the benefit eligibility window in specific regions with a higher unemployment rate. (Source: The Canadian Press)
- $5.6 billion more in benefits to veterans and their families over five years, including a disability award that increases to $360,000, retroactive to 2006, and an earnings loss benefit to injured vets of 90 per cent of pre-release salary. The government is also re-opening nine veterans' service offices across the country and adding a 10th. - Planned National Defence purchases worth $3.7 billion — ships, planes and vehicles — are being deferred indefinitely. Read more here (Source: The Canadian Press)
Planned National Defence purchases worth $3.7 billion — ships, planes and vehicles — are being deferred indefinitely. Read more here (Source: The Canadian Press)
The budget includes $3.4 billion over five years to increase the guaranteed income supplement top-up benefit by up to $947 annually for single seniors, and restore the old age security eligibility age to 65 from 67. Read more here (Source: The Canadian Press)
The Liberals broke a major campaign promise to cut the small business tax rate. Instead, the rate will remain at the current 10.5 per cent on the first $500,000 of active business income. Read more here (Source: The Canadian Press)
The Liberals will spend $1.53 billion over five years to increase Canada student grants to $3,000 from $2,000 for low-income students, to $1,200 from $800 for middle-income students and to $1,800 from $1,200 for part-time students. $2 billion over three years is also earmarked for a new strategic investment fund for infrastructure improvements at colleges and universities, in partnership with provinces and territories.
The Liberals' green infrastructure plan includes: - $2.2 billion over five years in water and wastewater treatment and waste management - $2 billion over two years for a low-carbon economy fund - Over $1 billion over four years to support future clean technology investments - $345.3 million over five years to Environment and Climate Change Canada, Health Canada and the National Research Council to take action to address air pollution. (Source: The Canadian Press)
The Liberals will spend $500,000 to help understand the role of foreign homebuyers in the country's housing market. The government says comprehensive and reliable data on the number of homes sold to foreign buyers does not exist right now. Read more here. (Source: The Canadian Press)
The marquee Liberal commitment to Syrian refugee resettlement could end up costing taxpayers close to $1 billion. The budget provided an additional $245 million over five years to bring in the remaining 10,000 people needed to meet the Liberal promise to resettle 25,000 Syrian refugees by the end of 2016. Read more here (Source: The Canadian Press)
$142.3 million over five years will be spent to add new national parks and improve access during the 150th anniversary of Confederation. (Source: The Canadian Press
The Grits will provide up to $178 million over two years for the provinces for urgent affordable housing needs. Read more here (Source: The Canadian Press)
The budget earmarks $38.5 million over two years to strengthen and modernize Canada's food safety system. (Source: The Canadian Press)
Follow Jasmin Guénette on Twitter: www.twitter.com/JasminGuenette