Launch of the 2014 OECD Economic Survey of Canada

1. 2014 OECD ECONOMIC
SURVEY OF CANADA
11 June 2014, Montréal, Canada
www.oecd.org/eco/surveys/economic-survey-canada.htm

2. Canadians enjoy high levels of well-being

3. Exports, especially non-commodities, have been weak

4. Productivity has lagged but not wages, boosting costs

5. The current account has not recovered

6. Business investment has also been weak of late

7. Canada has had improving labour market outcomes

8. Monetary policy remains accommodative

9. Mortgage rates are low and household debt high

10. • Increase the policy rate as underlying
inflation pressures rise to stabilise the
inflation rate at the 2% target-range
midpoint.
According to our Economic Outlook 95 of last
month, this implies 4 quarter-point rises
during the course of 2015.
Recommendation on stabilization policy

11. Housing spending as a share of income, 2011

12. House prices have risen sharply in the past 15 years

13. 1981-85 1986-90 1991-95 1996-00 2001-05 2006-10 2011-13 2013q42
Canada 78.3 94.5 99.3 92.2 99.0 119.6 128.5 130.6
United States 108.6 103.5 96.4 92.9 104.9 102.6 85.3 90.2
Japan 118.2 123.6 116.1 101.2 87.1 73.0 65.2 62.9
Germany 132.1 109.0 106.9 99.6 86.7 77.3 80.8 84.1
France 89.3 93.0 88.9 78.5 100.9 130.7 130.9 127.9
Italy 104.7 85.4 101.0 82.3 99.7 118.2 114.5 108.2
United Kingdom 81.0 102.2 80.2 78.5 113.6 131.3 122.0 124.2
Australia 77.1 86.6 91.5 89.1 117.1 126.3 120.6 126.9
New Zealand n.a. 74.4 81.5 91.7 106.2 131.3 125.2 131.5
OECD 104.7 103.9 98.7 91.7 101.1 103.5 93.9 95.3
Canadian house prices are high relative to income

14. Prices and affordability vary widely across the country

15. % of households spending >30% of income on shelter

16. Mortgage payments/PDI per worker (affordability)

17. Housing investment as a % of GDP vs pop growth

18. Household debt/disposable income has risen

19. Mortgage arrears rates remain low

20. • The system is different from its US counterpart.
• Financial oversight has been tightened post-
2008
• Mortgage securitisation is still not that
extensive, though it seems to be still rising.
• But most mortgages (and all with high LTV
ratios) are insured.
• CMHC is a big player, perhaps too big.
The housing finance system looks structurally sound

21. Larger houses despite smaller households

22. Lower urban densityHigher per capita CO2 emissions

23. • Tighten mortgage insurance to cover only
part of lenders’ losses in case of mortgage
default. Continue to increase the private-
sector share of the market by gradually
reducing the cap on the CMHC’s insured
mortgages.
• At the municipal level expand low-cost rental
housing supply and densification by
adjusting zoning regulations to promote
more multi-unit dwellings.
Housing policy recommendations

24. Skills mismatch in literacy is low

25. Earnings premiums have been stable over time

26. Increase in real
earnings
Increase in
earnings relative to
earnings for a
high-school
graduate
Post-secondary certificate/diploma (PSCD)
Atlantic Provinces 17.0 2.0
Québec 6.2 1.8
Ontario 5.7 3.3
Prairie Provinces 24.4 0.5
British Columbia 10.2 0.4
Canada 10.4 1.2
University degree
Atlantic Provinces 14.0 -0.6
Québec 2.9 -1.4
Ontario 2.0 -0.2
Prairie Provinces 15.0 -7.1
British Columbia 5.5 -3.8
Canada 5.6 -3.2
Memorandum:
High-school diploma
Atlantic Provinces 14.8 -
Québec 4.4 -
Ontario 2.3 -
Prairie Provinces 23.8 -
British Columbia 9.7 -
Canada 9.0 -
Regional changes in earnings and premiums since 1997

27. Vacancy rates have risen, but mainly in a few areas

28. Literacy and numeracy scores for 16-24 year-olds
2012

29. Gap in literacy scores between 16-24s and 55-65s

30. Soft skills are important in entry-level hiring

31. Employer-sponsored training per employee (2010 $)

32. Publicly funded training expenditure, 2011

33. • Number of apprenticeships doubled from 2000 to 2011.
• But completion rate remained at only 50%.
• One barrier is lack of income during in-class training.
Another is employer unwillingness to cooperate.
• We endorse the new Canada Apprentice Loans and
suggest extending Canada Job Grants to apprenticeships.
• We also recommend more efforts at harmonizing
standards and programs across the country.
Raising the apprenticeship completion rate

34. Temporary Foreign Worker entries/all new immigrants

35. Interprovincial migration has trended down

36. Alberta attracts the most interprovincial migrants

37. Regional employment rate dispersion has converged
with the US

38. • Build on announced new measures to provide better
information on expected returns to post-secondary
education to improve students’ study choices.
• Strengthen the single market for labour by making the
AIT dispute resolution tribunal more accessible and
expediting its procedures. In addition, continue to work
with provinces and territories to harmonise training and
certification requirements of all apprenticeship
programmes across the country to increase completion
rates and inter-provincial mobility for apprentices.
• If recent Employment-Insurance reforms do not clearly
cut repeat use, adopt experience-rated premiums and
enhance opportunities for seasonal workers to retrain.
Advice on how to deal with skills shortages

39. • Continue to implement reforms to slow
growth in provincial health-care costs,
including patient- or activity-based
funding for hospitals, increasing the share
of ambulatory care and consolidating
input purchases with other provinces.
• Establish a single independent budget
office for the provinces.
Recommendations on fiscal sustainability

40. Provincial fiscal capacities, 2012/13, CAD per capita

41. Average government take in oil and gas tax regimes

42. • Factor in provincial differences in
demographics when calculating federal
transfers to provinces.
• At the provincial level, increase taxes from
non-renewable resource development, and
raise the share of revenues saved.
• Provide clear guidelines for resource
companies on how to engage with affected
Aboriginal groups so that projects bring
long-term benefits to these communities
Advice on managing non-renewable resources

43. Greenhouse gas emissions intensities

44. Average effective tax rates on CO2 from energy use

45. • Continue expanding the use of market
instruments to price carbon emissions.
Work with provinces to ensure coherence
of provincial climate-change strategies
with international commitments.
• Ensure that regulatory objectives for
treating waste from oil-sands projects are
met.
Environmental policy recommendations