Canada lags in business investment: Fraser Institute

Canada is lagging far behind other developed countries when it comes to business investment, which is critical to grow the economy and increase living standards, finds a study released by the Fraser Institute.

“When businesses invest in the latest technologies and production techniques and expand their operations, it spurs economic growth and raises living standards for workers,” says Philip Cross, former chief economic analyst for Statistics Canada and author of the study, in a release.

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The study finds that Canada has suffered persistently weak levels of business investment — the money firms spend on buildings, machinery and equipment, and research and development — since at least 2000.

The last energy boom temporarily masked Canada’s low levels of investment in other industries, but since the fall of energy prices in 2014, business investment in Canada is back to previously low levels. In fact, since the end of the third quarter of 2014, business investment in Canada has declined a staggering 18% (after accounting for inflation).

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Crucially, Canada has one of the lowest levels of business investment among 17 developed countries in the OECD.

Business investment as a share of GDP (that is, business investment relative to the overall size of the economy) between 2015 and this year is projected to be just 10.9% in Canada — the second lowest among the 17 countries — compared to, for example, South Korea (21.3%), Australia (15.7%), Sweden (15%) and the U.S. (13.3%).

And Canada ranks 15 out of 17 in business investment per worker at just $9,290 compared to, for example, Switzerland ($17,423) and the U.S. ($14,889). Put differently, Canadian workers have just 62% of the capital available to them that American workers do.

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“With low levels of business investment compared to other developed countries, Canadian workers do not have access to the tools and technology they need to be more productive and earn higher incomes,” Cross says.

“The factors affecting business investment are complex, but governments across Canada have aggravated the problem in recent years with an onslaught of economically damaging policies such as higher taxes, costly regulations and increased uncertainty about future taxes by adding billions in debt.”

Read the full report.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.