The report, authored by William Robson and Mawakina Bafale, underscores the need for significant pro-growth reforms to reverse this trend and improve the nation’s economic outlook. The fall is already adversely affecting productivity and living standards in the country.
The report notes a widening gap between investment levels in Canada and those in the United States. While the gap had narrowed from the late 1990s through the early 2010s, it has since grown substantially. By 2024, Canadian workers are expected to receive much less new capital compared to their peers in OECD countries and the U.S., indicating a concerning disparity in investment levels.
This decline in business investment is closely linked to lower productivity growth. Higher productivity typically drives business investment by creating new opportunities and competitive pressures, which in turn enhance productivity as businesses invest in better tools and technology for their workers.
The current trend, where investment per worker in Canada is significantly lower than in other developed nations, suggests that businesses view fewer opportunities within Canada, potentially leading to stagnant earnings and living standards.
The gap in gross domestic product (GDP) per capita between Canada and the U.S. has also been widening, with GDP per capita in other OECD countries significantly surpassing Canada’s. This growing disparity reflects a decreasing attractiveness of Canada as a destination for skilled professionals, further compounding the nation’s economic challenges. Recent data shows that Canada’s GDP per capita has been declining for several quarters, highlighting ongoing economic concerns.
Several factors contribute to the current investment climate in Canada. A shift towards residential construction, coupled with a regulatory environment that has been unfavourable to the fossil fuel industry, is believed to be part of the problem. Additionally, U.S. tax reforms implemented in 2017 have likely diverted investment away from Canada, and increasing protectionist measures in the U.S. have further strained Canada’s investment prospects.
If these trends continue, Canadians may find themselves increasingly engaged in lower value-added activities compared to their international counterparts. This potential outcome underscores the need for Canadian policymakers to implement reforms aimed at enhancing the investment environment.
To address these issues, the report advocates for improved tax and regulatory policies, as well as a focus on long-term economic growth strategies. By adopting such pro-growth reforms, Canada can better align with global investment trends, boost productivity, and ultimately improve living standards across the country.
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