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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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Improving the Business Environment

This chapter considers policies affecting the business environment in Canada and examines how the federal, provincial and territorial governments could move towards establishing a more level playing field where firms can compete against one another and in the global environment by making the most of market opportunities. A number of issues need to be tackled. High marginal effective tax rates on capital reduce new investment and also lead to a misallocation of resources. Product market competition would be invigorated by liberalising electricity markets; lifting foreign direct investment restrictions in telecommunications, broadcasting and transport; dismantling inter-provincial barriers in services; and scaling back occupational licensing. Agricultural supply management systems should be replaced by open markets and industrial subsidies should be minimised. The cross-subsidy component of unemployment insurance needs to be addressed. Regulation of banking and securities ought to focus on building deeper, integrated markets by allowing consolidation to take place, by ensuring effective competition from foreign bank entry and by achieving a single securities market.

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