As it happened, the situation did turn around. It helped that Canada sits atop some of the richest stores of natural resources in the world, at a time when everyone else suddenly became hungry for them. As a result, over the last five years of the commodity boom, Canadians have seen their disposable incomes grow at twice the rate as in America. But as economists point out, there’s more to Canada’s resilience than just geographic luck of the draw. By 2012, Canada’s corporate tax regime will be more competitive than most other developed countries, including the U.S. Years of belt-tightening have also given Ottawa more room to manoeuvre now. Even though federal stimulus spending is expected to push Canada’s debt-to-GDP ratio to 35.5 per cent next year, that’s still a far cry from the 60 per cent average plaguing the rest of the G7 countries. Now, at a time when many countries face pressures to hike taxes and become more protective, Ottawa has announced plans to remove all tariffs on machinery imports, lift restrictions on foreign venture capital investors, and has hinted at scrapping foreign ownership rules in the telecommunications sector. Wright at RBC says Canada still has a long way to go to boost productivity levels, but that’s nothing compared to mammoth problems facing other countries.
Canada isn’t free and clear of the recession yet. Nearly half a million jobs were lost during the downturn, many in the manufacturing sector, and it will take time to undo that damage. Canadian households are struggling under heavy debt loads. Meanwhile, the country’s fortunes are heavily dependent on a continued rebound in China and the rest of Asia.
So before we gloat too loudly about how much better off we are, perhaps it’s a good idea to recall the fate of that other tiger, the Celtic one. During the 1990s, the Irish economic miracle made the Emerald Isle the envy of the world. Yet much of the Celtic Tiger miracle turned out to be a mirage fuelled by cheap money and overspending. Now the country is suffering under a mountain of debt and spiralling unemployment. Canada doesn’t have to worry about suffering such a fate, but the lesson is still clear. History has shown that when a country believes too strongly in its own exceptionalism, and forgets to live within its means, the economy has a way of crashing back to reality.
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