TORONTO, - After several years of relatively robust performance, Canada is lagging its peers in business investment growth, according to a new report by the C.D. Howe institute. In "Equipping Canadian Workers: Business Investment Loses a Step against Competitors Abroad," authors Benjamin Dachis and William B.P. Robson find 2013 growth in new private-sector plant and equipment spending per worker in Canada seems likely to lag investment abroad, with strength in the more natural-resource-oriented provinces offset by weakness in Central Canada and the Maritimes.
"Business investment is a fundamental driver of economic growth and rising incomes," said William Robson, "Canada has improved its standing, but the more serious setbacks in other countries after the financial crisis flattered our relative performance. We need supportive national policies, and improvements in the provinces that are lagging, to give Canadian workers the tools they need to compete against the best in the world."
After decades of investing far less per worker than counterparts abroad, Canadian businesses improved their standing after 2009, according to the authors. By 2012, they had surpassed the OECD average and closed the gap with the United States. In 2013, however, Canada's per-worker tally will likely fall to 96 cents per dollar invested in the United States and slip to 107 cents per dollar invested across the OECD from a 2012 peak of 108 cents.
"Changes in tax and regulatory policies can help move lagging provinces and Canada as a whole back to a leading position," said Benjamin Dachis.
Saskatchewan and British Columbia experienced robust investment over the past five years, but recent figures show investment slipping in both this year. Growth also appears to be flagging in Alberta, where 2013 investment is forecast to be about the same as in 2012. Newfoundland and Labrador stands out for continued investment strength, with a projected large per-worker increase in 2013.
Among less commodity-driven provinces, Manitoba looks set to do well in 2013. Unfortunately, the story in Central Canada is one of continued underperformance. Ontario workers continue to get only 62 cents for every dollar US workers receive. Levels in Quebec are better, but appear to be slipping after an uptick in 2011 and 2012.
The Maritime Provinces in general are not doing well. Nova Scotia seems likely to improve, but from a very weak performance in 2011 and 2012. New Brunswick has shown a declining trend for many years, and the average worker in Prince Edward Island, once again, appears likely to get only about 50 cents of new investment for every dollar the average US worker gets.
The authors highlight the impact of taxes on new business investment, noting that British Columbia's replacement of its Harmonized Sales Tax this year with a less investment-friendly retail sales tax may help explain its 9 percent drop in investment per worker in 2013. They also emphasize that business property taxes in many provinces are likely major inhibitors of investment in structures.
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