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2006 OECD Economic Surveys: Canada 2006

image of OECD Economic Surveys: Canada 2006

This 2006 edition of OECD's periodic survey of Canada's economy finds strong economic performance but cautions that to maintain this performance, productivity must be increased and social policies must be put on a sustainable path.  After reviewing recent economic developments, the Survey examines the business environment including taxation, product market competition, and capital markets.  It then takes a look at the state of innovation, Canada's innovation strategy, and how to leverage innovation to improve economic performance.  A chapter on fiscal policy and federal-provincial arrangements finds equalisation transfers need to be revamped and that the federal government should step back from trying to steer in areas of provincial responsibility.  The final chapter takes a detailed look at social welfare programmes.

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Adapting Fiscal Policy and Financial Arrangements in the Federation

This chapter examines the sustainability of financial arrangements within the Canadian federation. Fiscal performance is currently amongst the best in the OECD countries, but some refinements to the fiscal framework both at the federal and provincial levels may be helpful to prepare the economy to cope better with the long-term challenges of rising spending on health and long-term care. In addition, long-term projections at the general government level will help to verify whether current policies are consistent with Canada’s future needs. The federation has thus far achieved its goal of ensuring provinces have sufficient revenues to deliver similar public services at comparable levels of taxation. However, existing federal-provincial arrangements may not be sustainable over the medium run. Streamlining the system of transfers, as well as strengthening the accountability of the various levels of governments, would be beneficial. Moreover, the present equalisation system needs to be adapted to structural changes underway and the growing importance of the energy sector.

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