Higher taxes, more regulations, and increasing uncertainty are having a dangerously damaging impact on Canada’s already-low business investment, and we are falling behind other developed nations.
A new report from the Fraser Institute reveals a disturbing decline in Canada’s levels of business investment. Between 2009-2014, Canada averaged 8th out 17 measured OECD countries in business investment. But, from 2015-2017, we have fallen all the way to 16th out of 17. While business investment in the previous period averaged 12.6% of GDP, it has fallen to 10.9% of GDP.
While some of the decline is attributable to the drop in oil prices, investment has continued to fall even as prices stabilized.
As noted in the report, “The persistent weakness of business investment in Canada has been aggravated by several recent government policies including increased tax rates on capital and mounting budget deficits and debt, both of which add to the uncertainty that entrepreneurs and investors feel about the future.”
The Fraser Institute points out why business investment is so important for our country:
“Business investment is central to long-term economic growth and rising living standards. Investment is also an important determinant of the structure of industry growth in future years, since it provides the capital for firms to grow. Investment embodies new technological developments and innovations, committing firms to expand in a specific direction while providing the tools for employees to work more productively.”
This means that we will face compounding economic consequences from this lack of investment, and we will fall further and further behind other nations.
A deeper look into the Fraser Institute report reveals some disturbing numbers. For example, Canada actually invests about the same in manufacturing as struggling Greece does, and even less in services. Take a look at the chart below:
Keep in mind that things have got even worse since the 2015 time period included in that chart.
Trudeau government policies are making a bad situation worse
While Canada’s weak business investment predates the Trudeau government, policies being imposed by Trudeau are making it far worse. As I’ve said before, Canada needs an industrial policy focused on boosting growth in key areas of the economy. Such a policy would include cutting taxes and regulations to strengthen the energy sector, putting targeted tariffs on some cheap-labour nations to protect Canadian manufacturing, tax rebates to encourage exports, foreign ownership restrictions to protect sensitive Canadian industries and companies, and a military buildup to strengthen our domestic production and aerospace industry. We also need to get the debt under control and stop crowding out private borrowing.
Unfortunately, the Trudeau government is going in the opposite direction. Their increased taxes and regulations damage business confidence and deter investment, and their continued budget deficits are just making things worse. We have seen the loss of tens of billions of energy industry investment, and our exports continue to take a big hit. We need to get our economy back on track, and that needs to happen as soon as possible. Every day that we fall behind in business investment is a day in which Canada’s economic future becomes weaker and weaker.
Photo – Fraser Institute
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