Published in the Globe and Mail on August 28th

Like his promise to get a good trade deal with the U.S., Prime Minister Mark Carney’s promise to bring down the cost of living for Canadians may be more difficult to achieve than he suggested during the election campaign.

Any action to bring prices down would create more harm than good. Improving productivity or raising workers’ bargaining power are the only tangible ways to make life more affordable. It’s concerning that Mr. Carney has yet to offer solutions to these issues – apart from recycling ineffective ideas from past governments.

Canadians have complained for many years about life becoming unaffordable. They are not alone; high costs of living have angered people in many countries. This raises the question of what governments can do.

The government cannot simply lower prices. Canada has a 2-per-cent inflation target – for good reason – and, pandemic aside, the Bank of Canada has been pretty good at meeting it. Bringing average prices down, let’s say to prepandemic levels, would be a radical move: It would require the Bank of Canada to raise interest rates and engineer a large economic slowdown that would put more people out of work than U.S. President Donald Trump’s tariffs.

Targeted measures such as cutting the GST for first-time homebuyers would help this group, but it would also boost the demand for housing and raise prices for everybody else.

The only sure way to reduce the cost of living is to ensure wages grow faster than prices – in other words, raising workers’ bargaining power and productivity growth.

Globalization, deregulation and advances in IT, among other factors, have eroded workers’ bargaining power. Stronger employment standards and policies to promote unionization would help rebalance things. But governments appear to be going in the opposite direction with their tendency to imposeback-to-work legislation and failure to support workplace rights.

It is not clear what Mr. Carney plans to do to improve productivity. While he says it is a time to be bold, so far his ideas have been recycled from Conservative and Liberal budgets of the past 15 years: cut taxes, build infrastructure, reduce regulation and subsidize some sectors, with all having had little impact on productivity.

Cutting the lower bracket for personal income tax will not affect productivity. Reducing internal trade barriers will help, but as recent CIBC and Canadian Centre for Policy Alternatives reports highlighted, the impact will be far less than what was hyped in the Speech from the Throne – yet another instance of a government inflating the numbers.

Increasing public infrastructure investment (and making it less burdensome) is sensible, but any public investment should meet a net social benefit test. This is not clear for things such as an east-west pipeline. Our government has invested a lot in infrastructure over the past 15 years. The stock of transportation infrastructure in Canada grew twice as fast as GDP; in the case of oil and gas, six times faster. The remaining infrastructure gaps are hard to identify.

Most business subsidies fail to raise the real income of Canadians. It is difficult to understand why tax-based expenditures, which include tax breaks for businesses and individuals, have been exempted from the recently announced expenditure review.

Tariffs on U.S. goods, especially retaliatory ones, will hurt productivity and raise the cost of living, but trying to get a trade deal at all costs would be a bad strategy. So we are in for some short-term discomfort, and we may want to use this opportunity to implement difficult reforms that could help our long-term productivity.

In the upcoming budget the government may want to consider initiatives proposed by international organizations and many commissions and advisory groups over the years: removing limits on foreign investment (except for national security) and minimizing impediments to competition; shifting the taxation burden to consumption; evaluating and eliminating ineffective business supports; reforming our procurement system, including doing away with the industrial and technology benefits policy; addressing non-financial barriers to training; improving merit-based support for education; enhancing advisory support for business; facilitating access to government programs; improving skills recognition; and using price-based environmental regulations.

Beyond productivity, the budget should consider initiatives to help those most affected by the high cost of living. The Build Canada Homes initiative is laudable, but its success will rely on how it’s implemented. Other initiatives could include making our safety net more efficient by, for example, increasing wraparound supports for long-tenure displaced workers, youth at risk, single low-skilled adults and other vulnerable groups.

Hopefully it’s not too late for some fresh ideas in Mr. Carney’s playbook.