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Peace Tower of Parliament in Ottawa.
MNI (Ottawa)

Canada's next federal budget will add to the country's debt load while failing to boost business investment already lagging the U.S. by the widest margin in decades, C.D. Howe Institute CEO Bill Robson told MNI, pointing to weaknesses identified by the Bank of Canada.

Unfocused deficit spending will hurt economic growth and tax revenue in the long run, said Robson, who has testified several times at parliamentary hearings on public finances and the economy. Toronto-based C.D. Howe often hosts sessions with government ministers and central bankers and runs a shadow monetary policy council.

"It would be helpful if in the next federal budget we had more positive talk about the contribution business can make" and "some concrete measures" to back it up, Robson said. However, "I'm not expecting it."

Finance Minister Chrystia Freeland devoted a big chunk of the deficit approaching 20% of GDP last year to relief checks for households and subsidies for wages and business rent. Up to another CAD100 billion of spending over the next three years will likely be put to goals such as fighting climate change and building a fairer economy, with more details in a budget that could come in the next two months.


"That planned stimulus of 70 to 100 billion, to me that just doesn't look serious," Robson said. "It's quite unsettling that we have a government that is so careless about that longer-term picture."

Canadian firms now spend just 58 cents per worker on investment for every dollar that U.S. companies do, Robson calculates, a trend that has worsened through the pandemic. It's the worst gap since at least the start of the 1990s, and more acute for more cutting-edge computer equipment. Canada is also a laggard on investment per worker against OECD nations.

The Bank of Canada has said the economy is more vulnerable with growth being led by consumer spending fueled by debt and less by business spending and exports.

It's unclear exactly why Canadian firms are investing less, but arguments include uncompetitive tax rates, trade restrictions between provinces and costly regulations, Robson said. There was a period in the early 2000s where the gap narrowed, and that might have been the result of some liberalization of business conditions in Canada, he said.


While major corporate tax cuts in the U.S. under Donald Trump also hurt Canada's relative business costs, Joe Biden's proposed increase won't help Canada much, Robson said. That tax hike may also slow U.S. economic growth, Robson said, and Canada sends three-quarters of its exports there.

Nudging companies to invest more and raise their competitiveness is a clearer way to help Canada's economy, Robson said. One way to do that would be short-term refundable tax credits for new investment, he said.

"Compared to the government spending another hundred billion dollars, most of which is going to be here today, gone tomorrow, there's just no comparison," Robson said.

MNI Ottawa Bureau | +1 613-314-9647 |
MNI Ottawa Bureau | +1 613-314-9647 |
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