On July 1, the cost of becoming more productive and competitive in BC and Ontario will fall significantly as the harmonized sales tax (HST) replaces the provincial sales tax (PST).
The PST directly adds to the cost of machinery, equipment and the technology we need to make our businesses productive enough to survive in global market. HST can be deducted from the tax collected when a manufacturer sells its final output. This will save our industries billions of dollars and go a long way to helping us deal with a strong dollar while improving our economy and lives.
Canadians and Americans are different in some ways. We see ourselves as more polite, we don’t carry firearms and we have the edge when it comes to hockey. But we also have many similarities: We speak the same language, shop in similar malls, live in the same kinds of houses and hold the same kinds of jobs. Moving south of the 49th parallel is not nearly as big a change for Canadians as moving to Asia, Africa or even or Europe.
But there are some important areas where we are not keeping up with the US. In fact, with our currencies at par, American companies are eating our lunch.
When Americans go to work, they turn out more goods and services each hour than we do, making them more productive. In fact, their output per hour worked has been higher than Canadian productivity over the lifetimes of most Canadians. And the gap is widening as US productivity improves at a faster pace than ours. In the last quarter of 2009, Canadian productivity grew a mere 1.4%, while the US surged ahead by 6.9 per cent.
Producing less means earning less, and this hurts our standard of living. As long as those who bought what we produced could pay in 65-cent dollars, we only noticed how poor we were while travelling out of the country. Now, with our dollar almost equal to the US dollar, goods and services sold to the rest of the world are more expensive, making it harder for us to compete.
More output, less effort
If we want a better life, we need to become more productive, but we don’t do that by toiling like slaves. Instead, we need machinery, equipment and technology to generate more output for each hour worked. Yet a recent report from Statistics Canada shows we are moving in the wrong direction with a record drop in this kind of investment during the recession. Short run, there was a small benefit: companies that were not spending on improving productivity could afford to keep more workers on and minimize unemployment. Over the long run, not investing in productivity enhancing tools is like not giving your child medical treatment because it will hurt. And the likely consequence is the loss of jobs as customers migrate to more productive companies.