Longer-term Issues in the Canadian Economy Mike McCracken Informetrica Limited October 16, 2003 AAAE Luncheon, Halifax

Areas to Examine Demographic base US outlook and other Global Factors Productivity & Investment Growth, Inflation, Unemployment, etc. Monetary Policy Government Balances

Issues Arising from Demographic Factors Immigration Policy – age, mix, cyclicality? Emigration – brain drain problem? Retirement Age – should it change? Which way? Increase labour force participation in other age-sex groups?

International Dimensions New Trade Agreements? Technological Breakthroughs? World oil price paths? China and India – scaling up? R-O-W exchange rates – do they matter?

Innovation and Structural Actions Innovation – does it translate into productivity growth? How? New resource bases? –Pipeline access –Northern development –Bio-based economy? –BC offshore? Kyoto I and Kyoto II

Monetary Policy Objectives Any Changes? –Inflation targeting at 2%? –Maintain slack through fiscal policy and high real rates?

Fiscal Policy Objectives Do surpluses continue? Does spending rise? Where? Are there tax cuts? –Personal income tax –EI premiums –Corporate tax –GST

Structural Choices Does the CPP buy most of the equity in the business sector? –Governance, conflicts Which way with health? –more coverage by public institutions or –a push for “privatization” – provision and financing Infrastructure?

Wild Cards Quebec (& Alberta) Separation World Oil Price Shocks Terrorist Attacks Infrastructure Failure Federal-Provincial Cooperation Technology Breakthrough

The Good News Slowing population and labour force growth Continued improvements in real incomes with rising productivity No inflation problem Strengthening exchange rate Fiscal improvements at all levels

Concerns Infrastructure – electricity, water & sewer Health system improvements – elder care and catastrophic cost protection Too much slack in labour markets Slow convergence on regional gaps Wild Cards – oil price shocks, terrorist acts, etc.