Canada Economic and Financial Policy Between 1981 and 1983

By | December 27, 2021

In the early Eighties the economy of Canada recorded very variable growth rates (with a marked recession in 1982, when domestic demand contracted by almost 6.5% compared to the previous year), a rate of inflation above 10%, an increase in unemployment and, above all, in the public deficit in relation to GDP (which rose from 1.5 to 7% between 1981 and 1983).

In 1984 the new government adopted a medium-term strategy aimed at achieving sustained growth, reducing unemployment and consolidating price stability.

The strategy envisaged substantial cuts in the government deficit in order to halt the growth of the debt-to-GDP ratio and reduce the presence of the state in the economy. Despite the fiscal adjustment that took place between 1985 and 1988 (in this period the public deficit ratio to GDP nearly halved, falling from 6.8 to 3.8%), progress was less than initially expected.

The sustained increase in domestic demand made it possible to significantly reduce the unemployment rate, from over 11% in 1984 to 7.8 in 1988. Furthermore, the degree of capacity utilization was, in mid-1987, approximately 15% compared to the 1982 minimum and not far from that recorded at the previous peak (1973).

The inflation rate, from a low of 3.5% in 1984, only rose slightly over the next two years following the increase in some indirect taxes and the depreciation of the Canadian dollar since the beginning of 1985. For Canada economics and business, please check businesscarriers.com.

The current account of the balance of payments, after presenting assets exceeding 2 billion dollars a year in the three-year period 1982-84, recorded a slight deficit in 1985. In the following three years, the current deficit widened, exceeding 8 billion in 1988. dollars. The deterioration is attributable to the sharp fall in the price of oil and the slowdown in growth in industrial countries.

Inflationary tensions and the worsening of the current account at the beginning of 1989 led to restrictive fiscal and monetary policies. GDP growth slowed but inflation continued to rise; the current account deficit reached about $ 14 billion. In 1990, the economy entered a more marked recession: the current account deficit worsened further, GDP increased by only 1% and unemployment began to rise again.

The government’s goal of increasing efficiency and reducing the presence of the public sector in the economy has been pursued in recent years through the deregulation of the energy sector, the liberalization of foreign investments, the sale of numerous public enterprises and the reform of the financial market. The most recent initiatives concerned the reform of the tax system and the bilateral free trade agreement with the United States.

The tax system reform, presented in June 1987, involves two phases. The first phase includes, together with the widening of the tax base, a reduction in the rates of direct taxes on natural and legal persons. The second phase, on the other hand, envisages a new structure of sales taxes (similar to value added tax) and a reduction in taxes on average incomes.

The bilateral agreement concluded with the United States in October 1987 provides for the elimination of barriers to the free trade of goods and services, a significant reduction in investment constraints, and the creation of procedures and institutions to ensure the smooth functioning of the ‘agreement and the resolution of any disputes between the two countries.

The most important problem for the Canadian authorities today is that of maintaining adequate growth rates in a context characterized by a high degree of utilized capacity. Economic policy must therefore be aimed at expanding supply and controlling demand; it remains tied to the need for a further reduction in the public deficit, the maintenance of a monetary policy that limits aggregate spending and the continuation of structural reforms aimed at improving the efficiency of the economic system.

Population

Over the last fifteen years, Canada has considerably strengthened its production structures, revealing an enormous potential for development, so much so that it can be considered one of the major economic powers in the world. At the same time, the link with the United States has become even closer and the two economies are strongly complementary; membership of the Commonwealth is still useful to Canada, but it is no longer a predominant fact. The United States has a similar role in regard to the country as the United Kingdom held a few decades ago, but the government of the country tends to develop an autonomous economic personality in the country.

Population. – The population is growing rapidly; the basic data are shown in tab. 3. But some of the major Canadian cities, like several other important centers, are not administrative capitals; therefore see table 1, where some of these are reported.

Urban agglomerations have even greater importance, which swell around the actual cities, both due to lower settlement costs, and because many Canadians prefer a less congested environment, and finally for the availability of large spaces (see tab. 2).

The population of Canada is rapidly increasing, thanks to the economy in full development and the potential capacity of the country to support a much higher number of residents; immigration, no longer indiscriminate as in the past, sees an average influx of 150,000 people a year. However, the natural growth coefficient is decreasing (1.7%, average 1963-70), that of birth rate also (17.4 ‰ in 1970), against a low mortality rate (around 7 ‰). The highest population increases are recorded in the provinces of Quebec and Ontario, but the increases in British Columbia and Alberta are also notable; the other two provinces of the prairies, Manitoba and Saskatchewan, are instead stationary; also in the Atlantic provinces of Prince Edward Island, New Brunswick and Nova Scotia, where the population is already intense compared to the resources, there are no notable increases, which are instead appreciable in Terranova; this trend worsened from 1960 onwards.

Urbanism has intensified in recent years; over 80% of the population can be classified as urban; the new immigrants settle in the major urban agglomerations, especially Montreal and Toronto, and in any case in the conurbated belt of San Lorenzo, on the great lakes, on the Pacific coast; as for the prairie regions, the cities of Edmonton and Regina are preferred. Nearly 50% of the Canadian population resides in urban agglomerations with more than 100,000 residents.

In 1961 the residents of British origin were 7,996,669 (of which 4,195,175 English, 1,902,302 Scots, 1,753,351 Irish, 145,841 Welsh and others); 5,540,346 residents they were of French origin; 1,049,559 of German origin; 473,337 of Ukrainian origin; 429,679 of Dutch origin; 323,517 of Polish origin; 301,061 of Scandinavian origin; 450,351 of Italian origin. In 1969 the Amerindians were 244,023 and the Eskimos estimated at 17,000. The influx of Italian immigrants has intensified over the last fifteen years, with Quebec and Ontario as their destination. The two fundamental ethnic groups, French and British, continue to grow more by natural increase than by immigration, which has been somewhat slowed down.

Canada Economic and Financial Policy