Record low business investment threatens standard of living: Report

Breadcrumb Trail Links Columnists Author of the article: Lorrie Goldstein Publishing date: Aug 10, 2021…

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The growth rate of business investment in Canada from 2015-2019 — before the COVID-19 pandemic hit — was lower than in almost every other period since 1970, according to a new study by the Fraser Institute.

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Canada’s growth rate of 11.6% from 2015-19, was well below the average achieved by comparable industrialized countries belonging to the Organization for Economic Co-operation and Development, which averaged 19.6%, and the United States at 19.7%, according to the study, An International Comparison of Capital Expenditures.

“Business investment is critically important because of its effects on economic growth and higher living standards for workers, but lately, Canada has experienced some of the lowest growth rates in 50 years,” said study co-author Steven Globerman, in a release accompanying the report.

“Given how important business investment is to increase productivity and raise living standards, the slow growth rate Canada is experiencing is alarming, particularly now as Canada emerges from the COVID recession. Improving the conditions that encourage more business investment should be a priority for policymakers across the country.”

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The study says that in contrast to the anemic growth rate in business investment in Canada from 2015-19, from 2000-05, it was at 44.8%, almost double the average 22.8% increase for comparable OECD countries, and substantially ahead of the U.S. rate of 26%.

Globerman, an economics professor, said it’s particularly worrisome that Canada’s decline in business investment is evident in two important categories examined by the study — machinery and equipment, and intellectual property products such as software — because both significantly affect productivity and living standards for Canadian workers.

The latest decline in the growth rate of business investment from 2015-19 coincides with the election of the Trudeau government in 2015, a year after the global crash of oil prices in 2014, which created a great deal of business uncertainty in Canada.

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But the study by the fiscally-conservative think tank says the situation has been deteriorating for years, during periods presided over by Conservative governments as well as Liberal ones.

It says the growth rate of overall business investment in Canada slowed dramatically from 2005-19, falling from 44.8% in the period from 2000-05 (Chretien/Martin Liberal government) to 25.1% from 2005-10 (Martin Liberal and Harper Conservative governments); 18.9% from 2010-15 (Harper government); to 11.6% from 2015-19, (Trudeau government), among the lowest levels in five decades.

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Canada’s 18.9% growth rate in business investment from 2010-15 (Harper government) was below the OECD’s 27.3% average increase and the U.S. rate of 35.1%.

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Similarly, Canada underperformed for the most recent period of 2015-19 (Trudeau government), recording a growth in business investment of just 11.6% compared to the OECD’s average of 19.6% and the U.S. rate of 19.7%.

The study says its findings lend weight to similar conclusions by many other reports in recent years, concerned “about the future competitiveness and productivity performance of Canada’s business sector compared to other developed countries.

“Against this background, improvements to the environment for business investment in Canada should be a priority for federal and provincial governments …

“Certainly more favourable tax treatment of business income and capital gains is a priority for policymakers to consider against a backdrop of a slower-growing and aging workforce with the (associated) need for faster rates of labour productivity growth in order to accelerate real economic growth, as well as raise the standards of living of individual Canadians.”

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