Rhetoric vs. reality—the Trudeau government’s dismal record on business investment

Business investment—in factories, machinery, equipment and new technologies—remains vital to the prosperity of any country. “If businesses don’t invest, to create great jobs,” said former Trudeau finance minister Bill Morneau in 2018, “then we won’t have the future we want in our country.” And yet, it’s in this area of the economy where the Trudeau government has performed worst and continues to ignore the problem.

Between 2016 and 2019, a near unprecedented chorus of business leaders publicly warned about the attractiveness of Canada to entrepreneurs, businessowners and investors as well as our overall competitiveness or lack thereof.

For instance, in 2018, David McKay, CEO of the Royal Bank of Canada that Canada, said Canada has a “critical competitiveness challenge” that should be addressed with “tremendous urgency,” adding that the flow of capital out of the country was leaving in “real time.” Brian Porter, CEO of Scotiabank, the country’s most internationally-oriented bank, warned about Canada losing its “competitive advantage” and that Kinder Morgan’s decision to sell the Trans Mountain pipeline could have a “broad chilling effect” on foreign investment. David Dodge, former governor of the Bank of Canada, said Canada was “shooting itself in the foot” in terms of competitiveness. And finally, Steve Williams, then-CEO of Suncor, one of the world’s largest energy companies, indicated his company was reducing investment in Canada because of our regulatory system and general lack of competitiveness.

Unfortunately, at every turn the Trudeau government’s response was that everything was fine. For instance, when questioned about Canada’s ability to attract investment and growing concerns about the cost of doing business in Canada, Morneau said “for an investor sitting outside of this country they can see that this is a place to do business” and repeatedly stated that: “Our plan is working. We’ve seen real improvements.”

But, as noted in our new study, the data on business investment tell a different story. On the broadest measure of investment, which includes residential and non-residential (i.e. business) construction, machinery, equipment and intellectual property, the Trudeau government (2016-19) experienced an average annual decline of 0.2 per cent before the 2020 recession.

By comparing the Trudeau government’s performance to past four-year pre-recession periods, which are comparable to the four-year Trudeau period noted above (2016-19), we find that the Harper government (2011-14) averaged 5.1 per cent annual growth in business investment and the Chrétien government (1997-00) enjoyed average annual growth of 7.5 per cent.

And critically, an analysis in 2019 of business investment in Canada between 2014 and 2017 found that roughly two-thirds of Canada’s 15 main industries experienced declines in business investment—so this isn’t just an energy-sector problem.

Of course, Canada, like many industrialized countries, has experienced a boom in residential construction. If you remove business investment in residential construction and focus more specifically on investment in plants, factories, machinery and equipment, the results are even worse. On average, this narrower measure of business investment declined by 1.5 per cent annually during the Trudeau era (2016-19) while the previous comparable period under Prime Minister Harper (2011-14) saw average growth of 7.9 per cent while Chrétien government (1997-00) recorded average annual growth of 9.3 per cent.

Indeed, the Trudeau government has experienced the lowest—in fact, declining—average rates of business investment growth of the last five prime ministers going back to Brian Mulroney.

Perhaps even more worrying is that there seems to be no acknowledgment of this problem in Ottawa nor any interest in reversing course on policy to actually encourage and attract business investment to this country. Simply put, Canada’s recovery cannot take hold unless business investment is revitalized. And this will require policy change in Ottawa.