Canada must embrace AI to build a more productive economy

Canada must utilize AI to streamline and speed up service delivery, cut bureaucratic costs, and turn our nation into a hub of innovation.

Canada has a productivity problem. Here’s how the School of Public Policy at the University of Calgary put it:

“Canada is seriously lagging in productivity growth, which is the only means countries have to raise their citizens’ standard of living. Overall, Canadian business productivity fell by 0.6 per cent over the past five years. This is in sharp contrast to the United States, which enjoyed a 10.1 per cent increase over the same period. This trend of faster U.S. growth has held true since the mid-1990s, with Canadian productivity rising by about half as much as the American rate. In fact, Canada trails not only the U.S. but all advanced countries in Northern and Western Europe, as well as Australia.”

Until recently, the Canadian government was using immigration to paper over low productivity, with population growth generating a raw increase in GDP even as per capita GDP declined. But that doesn’t generate real prosperity, and with immigration levels being significantly scaled back, real productivity growth is the only credible way for Canada to generate overall GDP growth.

For too long, Canada has been missing an ambitious faction in our politics. Those open to big investments have often seen increased government spending as the way to make that happen, while being suspicious, if not outright hostile to the private sector, while those open to the private sector have often been hostile to any kind of big national thinking. This results in an overly cautious national approach, where avoiding mistakes is seen as preferable to taking a swing for the fences. Of course, since taking a lot of chances raises the odds that one of those chances will pay off, the chances we haven’t taken as a nation have left us poorer than we should be otherwise.

Thankfully, the rapid advancement of Artificial Intelligence provides Canada with an opportunity to raise our productivity without substantial population growth. Rolling out AI at all levels of government, going through each department to see what can be automated, incentivizing the adoption of AI by Canadian businesses, and, most importantly, making it more lucrative for Canadian entrepreneurs and innovators to stay in Canada rather than take their talents elsewhere, will be essential to this process.

Here are three things we can do:

First, implement a Federal AI Deployment Mandate, requiring every federal department to implement at least one AI-driven service improvement per year, funded by a procurement budget that uses emergency authority to bypass the current tender process.

Second, a 30-40% AI Investment Tax Credit for small and medium enterprises that purchase and integrate domestically-developed AI tools.

Third, implement the Canadian Entrepreneurs Incentive immediately (rather than phasing it in fully by 2029), and complement it with Founder Equity Tax Parity to match or beat current U.S. capital gain tax treatment for Canadian tech founders who build and exit companies domestically, reducing the capital gains inclusion rate on founder equity to match or beat U.S. long-term rates for companies that remain in Canada through an IPO or acquisition.

These ideas will pressure the bureaucracy to implement AI, incentivize the purchase and implementation of Canadian AI tools, and help stem the brain drain. They will also face institutional pushback. Inefficient processes often sustain jobs that, while leaving the country as a whole poorer due to a less productive allocation of talent and financial resources, understandably matter to those in those jobs. There will be concerns over cutting taxes for ‘wealthy founders’, though if those founders leave Canada entirely, the country loses their minds and their tax contributions altogether.

There is also an understandable fear that AI will eliminate far more jobs than it creates, though as noted in a Goldman Sachs report citing economist David Autor’s research, innovation leads to new jobs that account for most job creation in the post-innovation period. Still, protecting what we have is often a stronger motivator than gaining more. Yet, if Canada fails to embrace AI, it’s not as if the rest of the world won’t use it. We will simply fall further behind, with a less efficient and less productive economy that will drive more of our talent elsewhere. By contrast, a Canada that embraces AI is a Canada that can turn our immense potential into reality. A core part of our strength has been our openness to different people and different ideas. Let’s apply that same openness to technology.

Spencer Fernando

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