OTTAWA, June 26, 2024 (GLOBE NEWSWIRE) -- Canada must unlock private sector investment and foster a more competitive business environment to enhance productivity growth and secure long-term prosperity, according to new research from The Conference Board of Canada.
“Canada’s productivity has lagged behind its peers for years, but with the recent steep downturns in performance, concerns have intensified,” said Pedro Antunes, Chief Economist at The Conference Board of Canada. “While managing short-term industry disruptions remains important, the priority should be tackling entrenched structural issues.”
Unlocking private investment is crucial for reigniting productivity growth. Over the past decade, weakening business investment has eroded productivity growth by 0.5 per cent annually. If not for this decline, Canada’s nominal GDP would be roughly $130 billion higher today.
High corporate taxes represent a major hurdle to business investment in Canada, especially following the tax cuts enacted by the United States in 2017 which significantly undercut Canada’s corporate tax competitiveness. A comprehensive review aimed at aligning Canada’s tax competitiveness with that of the United States could help attract investment; however, the recent federal budget has raised further concerns on this issue. The proposed increase in capital gains taxes, while potentially improving the fairness for Canadian taxpayers, risks deterring new investments.
Facilitating and reducing the length of the environmental review process would also go a long way to encouraging investment in resource projects. Canada’s mining sector stands to benefit from the energy transition and increased global demand for strategic metals.
Competition plays an equally vital role in driving investment and enhancing productivity. Competitive markets incentivize firms to innovate, invest, and optimize operational efficiency, thereby lowering costs and elevating product quality. While Canada has made strides in eliminating international barriers, persistent interprovincial trade barriers hinder domestic competition. A host of non-tariff regulations and procurement policies restrict businesses from competing nationwide. Evidence suggests that dismantling these barriers to enable competition could add up to 4 per cent to Canada’s real GDP per person.
Fortunately, Canada’s knowledge economy is a source of strength, with private investment in research and development, as well as software, following a more positive trend. Still, the recent decline in Canada’s labour productivity underscores the need for strategic reforms to address key issues. Policymakers need to level tax and investment incentives with the United States and remove interprovincial trade barriers to revitalize business investment and strengthen overall productivity in Canada.
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