OECD URVEY: CANADA OECD OCPE 1993 ECONOMIC CANADA ORGANISATIONFORECONOMICCO-OPERATIONANDDEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuant toArticle 1 oftheConvention signedin Paris on 14th December 1960, and which came into forceon 30th September 1961, the Organisation for Economic Co-operation and Development (OECD)shallpromotepoliciesdesigned: to achieve the highest sustainable economic growth and employment and a rising standard ofliving in Member countries,whilemaintainingfinancial stability,andthusto contributetothedevelopmentoftheworldeconomy; to contribute to sound economic expansion in Memberas well as non-membercountries in the process ofeconomic development;and to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with internationalobligations. The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland,Italy, Luxembourg,theNetherlands,Norway,Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became Members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971) and New Zealand (29th May 1973). The Commission ofthe European Communities takes part in the work ofthe OECD (Article 13 ofthe OECDConvention). Publiéégalementenfrançais. ©OECD1993 Applicationsforpermissiontoreproduceortranslate allorpartofthispublicationshouldbemadeto: HeadofPublicationsService,OECD 2,rueAndré-Pascal,75775PARISCEDEX 16,France Table of contents Introduction 9 I. Recent trends and short-term prospects 1 1 A slow recovery 11 Characteristics of the upturn 13 Short-term prospects 28 II. Economic policies 31 Overview 31 Fiscal stance and budget outlook 31 Monetary management 44 Progress in structural reform 54 ID. The health-care system 62 Main features of the system 63 The performance and cost of the system 71 Problems with the system 85 Improving the system: reforms to date and future strategies 94 IV. Conclusions 107 Notes and references 113 Bibliography to Part III 119 Annexes I. Health-care commitments and cost-containment efforts across Canadian provinces in the 1970s and 1980s 124 II. Chronology of economic events 133 Statistical annex and structural indicators 139 Tables Text 1. Demand and output 15 2. Labour supply and demand 19 3. Wages, prices and profits 23 4. Balance of payments 27 5. Short-term outlook 29 6. Federal Budget: projections and outcomes 34 7. Sources of change in the federal deficit since the 1992 Budget 35 8. Provincial finances 36 9. General-government budget position 40 10. Money and credit aggregates 51 11. The structure of expenditure on health 70 12. Health outcomes 72 13. Trends in health inflation and benefits 78 14. Decomposition of health expenditure growth 79 15. Real per capita health expenditure by component 82 16. Health price inflation by component 83 Annexes Al. Provincial health expenditure as a share of GDP 125 A2. Per capita health expenditure 126 A3. Structure of health expenditure 127 A4. Public spending on health 128 A5. Health-care resources 129 20. Household debt and servicing cost 53 21. Interest spreads on bank lending 54 22. Total health expenditure by provider 64 23. Funding structure of Canada's health system 67 24. Health-care expenditures 74 25. Health and wealth 75 26. Health-care prices and volumes in the OECD area 76 27. Trends in the relative price of health care: international comparison 77 28. Real per capita health expenditure by component 81 29. The relative price of health by component 82 30. Health expenditure by component 84 31. Elderly health care commitments 87 32. Physician costs 88 33. Labour costs in the health sector 90 34. Technology intensity of health services 91 35. A summary of problems 93 36. Possible features of an improved system 105 Annexes Al. Per capita health expenditure by province, 1987 125 A2. EPF transfers for health 128 Statistical annex Selected background statistics 141 A. Supply and use of resources 142 B. Industrial production, employment and other business indicators 144 C. Prices, wages and finance 146 D. Balance of payments 147 Structural indicators E. Public sector 148 F. Financial markets 149 G. Labour-market indicators 150 H. Production structure and performance indicators 151 Diagrams 1. Comparison of the current and past economic cycles 12 2. Activity and capacity utilisation 14 3. Sources of household consumption growth 16 4. Business fixed investment 18 5. Employment and productivity 21 6. Wage developments 24 7. The current balance and its major components 25 8. Sectoral financial balances 28 9. Budget deficit projections 32 10. Major federal transfers to provinces 38 11. Federal and general government deficits 39 12. Indicators of fiscal stance 40 13. Public debt 42 14. Provincial net debt positions 43 15. Inflation performance and wage behaviour 47 16. Sacrifice ratios during two recessions 47 17. Short-term interest rate and exchange rate developments 48 18. Long-term interest rate and yield gap developments 50 19. Money aggregates 51 BASICSTATISTICSOFCANADA THELAND Area(thousandsq.km) 9976 Populationofmajorcities,including Agriculturalarea(1990,aspercent metropolitanareas(thousands): oftotalarea) 6.4 Montreal 2943 Toronto 3502 THEPEOPLE Population(1992) 28398200 Civilianlabourforce(1992) 137%800 Numberofinhabitantspersq.km 2.8 Employmentagriculture(1992) 433100 Population,annualnetnatural Immigration(annualaverage1988-1992) 209538 increase(average1988-1992) 202900 Averageannualincreaseincivilian Naturalincreaserateper labourforce(1988-1992,percent) 1.2 1000inhabitants(average1988-1992) 7.4 PRODUCTION GDPin1992(millionsofCanadiandollars) 688541 Originofgrossdomesticproduct GDPperhead(Canadiandollars) 24246 (1992,percentoftotal,1986prices): Grossfixedinvestment(privateandpublic) Agricultural,forestryandfishliinngg 2.9 perhead(Canadiandollars) 4577 Miningandquarrying 4.0 Grossfixedinvestment(privateandpublic) Manufacturing 17.5 aspercentofGDP 18.9 Construction 5.8 Nonbusinesssector 18.4 Other 54.4 THEGOVERNMENT House Governmentcurrentexpenditureongoods CompositionofParliament of Senate andservices(1992,aspercentofGDP) 21.5 (September1993): Commons Governmentgrossfixedcapitalformation (numberofseats) (1992,aspercentofGDP) 2.4 Liberal 177 41 FederalGovernmentcurrentrevenue Blocquébécois 54 - (1992,aspercentofGDP) 20.0 Reform 52 - Federaldirectandguaranteeddebt NewDemocratic 9 - (1992,percentofcurrentexpenditure) 220.8 ProgressiveConservative 2 58 Independent 1 5 FOREIGNTRADE Exports(1992) Imports(1992) Exportsofgoodsandservices, Importsofgoodsandservices, aspercentofGDP 26.4 aspercentofGDP 27.0 Mainexports(percentofcommodityexports): Mainimports(percentofcommodityimports): Wheat 2.4 Industrialmaterials 17.2 Naturalgas 3.2 Motorvehiclesandparts 22.9 Lumberandsawmillproducts 5.1 Producers'equipment 31.2 Pulpandpaper 7.8 Consumergoods 12.8 Othermetalsandminerals 11.5 Mainsuppliers(percentofcommodityimports): Motorvehiclesandparts 24.3 UnitedStates 70.7 Othermanufacturedgoods 24.8 EEC 9.1 Maincustomers(percentofcommodityexports): Japan 6.0 UnitedStates 77.4 EEC 7.3 Japan 4.6 THECURRENCY Monetaryunit:Canadiandollar CurrencyunitperUSdollar, averageofdailyfigures: Year1992 1.209 Note: Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable. ThisSurveyisbasedon theSecretariat'sstudyprepared for the annual review ofCanada by the Economic and DevelopmentReviewCommitteeon20thSeptember1993. After revisions in the light ofdiscussions during the review, final approval ofthe Surveyforpublication was given bytheCommitteeon6th October1993. ThepreviousSurveyofCanada was issuedinSeptember 1992. Introduction After an extended period of sluggish growth, the economic recovery in Canada is now under way. Exports have remained buoyant, benefiting from strong import demand in the United States and improved competitiveness associ¬ ated with subdued cost pressures, significant productivity gains and a lower exchange rate. A pick-up in employment, combined with real wage growth as inflation remains moderate, hashelped to fuel household spending. Some compo¬ nents ofbusiness investmenthave also rebounded, probably reflecting restructur¬ ing efforts on the part ofCanadian firms. Unemployment appears to have peaked but still exceeds 11 per cent of the labour force, as discouraged workers have begun re-entering the labour market. While narrowing, the external current- accountdeficithas remained large, keeping Canada's netforeign indebtedness on a rising trend. The recovery is expected to strengthen further over the next eighteen months. Although projected rates of growth - over 2'A per cent in 1993 and below 4 per cent in 1994 - may appearhigh in the present international environ¬ ment, they are modestcompared with pastCanadian recoveries. Indeed, the slack in product and labour markets is expected to remain large, putting downward pressure on wage and price increases. Inflation is projected to stay close to the lower end of the official target range (1lh to 3'/2 per cent by mid-1994), the lowest level in thirty years. While prospects for sustained non-inflationary growth have clearly improved, the projected upturn relies heavily on further improvements in the external environment and in the domestic macroeconomic policy mix. Success in reducing inflation has permitted a considerable easing in mone¬ tary conditions, as evidenced by marked declines in short-term interest rates and the Canadian dollar. However, this process was interrupted by periods of exchange-market disturbances, involving sharp downward pressure on the cur-