As Prime Minister Carney presides over this week’s much-anticipated “investment summit” in Toronto, Canada is grappling with an array of economic challenges.
The most pressing is the increasingly absurd “tariff war” initiated by U.S. President Donald Trump, who seems oblivious to the many advantages his country reaps from extensive trade with its northern neighbour. Inconveniently for Mr. Carney, as his summit gets underway, Canada finds itself mired in an escalating political and economic conflict with our principal trading partner. In recent decades, many businesses and investment funds that have allocated capital to Canada have done so in part because of our proximity and preferential access to the giant American market. Today, that no longer looks to be as compelling a selling point to prospective investors.
Beyond the Trade War
Apart from managing the fraught trade file, Canadian policymakers are also under pressure to address problems that pre-date President Trump and have been hobbling our economy for years. For some context, Canada has among the worst records of all advanced industrial countries in increasing per capita economic output (GDP) – the most widely used indicator of living standards. While our population has been growing steadily (until 2025), economic output has been advancing at a more subdued pace. The result: exceptionally feeble growth in per person GDP, even though overall economic output has continued to climb (Figure 1).
Figure 1
The main factor behind the stagnation of Canadian living standards is sub-par productivity growth. Over the period 1981–2001, Canada actually put in a respectable showing on this important indicator: labour productivity (GDP per hour worked) rose by 38 per cent, within hailing distance of the 47 per cent increase recorded in the United States. However, our relative standing deteriorated markedly thereafter, particularly post-2015, as Canada fell further behind not only the U.S., but several other major developed economies on this measure of prosperity. Over the four-plus decades spanning the period 1981 to 2024, Canadian labour productivity grew by a cumulative 61 per cent, less than half the figure in the U.S.
Lying behind Canada’s underwhelming productivity record is an “investment crisis” – low levels of business capital spending on assets and activities that drive productivity growth and business expansion. Measured on a per worker basis, Canadian businesses invest only 55–60% as much as their U.S. counterparts; our firms also underperform those in many other advanced economies in capital expenditures per employee. This is the main reason for Canada's uninspiring productivity growth.
The Prime Minister’s summit is intended to kick-start a revival of investment, including on natural resource and other industrial projects as well as transportation, energy and telecommunications infrastructure. His government has talked about attracting $1 trillion in new investment within five years.
Promoting Canada as a desirable place to invest makes sense, and the Prime Minister is well-suited to this task. ICBA wishes him success. But the reality is that clever marketing and promotion won’t be enough.
Particularly at a time when our trade relationship with the United States is in doubt, Canada should be advancing substantive policy reforms aimed at bolstering our competitive position as part of a sustained effort to prompt investors – both domestic and foreign – to choose Canadian projects and business opportunities. In ICBA’s view, this will necessitate action in several areas (some of these points are also made in the Business Council of Canada’s pre-budget submission to Finance Canada, and explored in greater detail by Charles Lammam in The Hub):
Business taxes:
Prior to 2018, Canada enjoyed a clear overall business tax advantage over the United States. That’s no longer the case, with the U.S. having enacted two rounds of far-reaching tax reforms in 2017 and 2025. Canadian policymakers – in Ottawa, but also at the provincial level – need to modify elements of the business tax regime to give companies and investors stronger reasons to select Canada. This doesn’t have to involve a major reduction in the aggregate “tax take” from the business sector. Instead, the primary focus of fiscally responsible business tax reform should be moving to a lower, uniform tax rate for all companies – regardless of size and industry sector – while scaling back the ever-expanding array of exemptions, tax incentives, and narrowly targeted tax credits and other preferences that have accumulated in the tax system in recent decades. Canada should also match the U.S. by 1) allowing the immediate write-off of most types of business investment, and 2) extending this accelerated capital cost recovery to all sectors of the economy – including mining, oil and gas, pipelines, power generation, and LNG facilities, along with manufacturing, transportation and advanced technology.
Regulation:
There has been an historic increase in the extent and cost of the regulatory burden imposed on business and industry by the federal government – and several provinces, including B.C. – since the mid-2000s, contributing directly to both lower GDP growth and declining competitiveness. This trend has affected virtually all sectors of our economy.
For construction, obtaining a general construction permit took almost 250 days in 2020, among the longest in the developed world. (Construction permits, it should be noted, mainly involve provincial and local governments, not Ottawa.) The regulatory process for developing a new mine can stretch to 15-plus years. Canada’s record of building new linear infrastructure in a timely and cost-effective way is nothing short of awful. Overlapping federal and provincial project assessment and permitting regimes are sometimes a source of delay. The obligation to “consult” and “accommodate” First Nations’ interests when undertaking projects has added complexity and legal risk in some areas of regulatory decision-making and can be especially challenging for natural resource and infrastructure industries.
Getting to grips with Canada’s regulatory morass requires a steadfast political commitment to modernizing and streamlining existing processes across government Ministries and agencies. It means rigorously assessing benefits versus costs when evaluating all proposed regulatory measures that are likely to affect business and the wider economy. Embracing meaningful regulatory reform goes beyond the positive steps taken by the Carney government since early 2025 to establish a fast-track review process for a handful of large projects deemed to be in the “national interest,” removing the oil and gas greenhouse emissions cap, and ending the practice of mandating a second federal environmental assessment for some categories of projects. A more systematic and multi-pronged push for greater regulatory efficiency, spanning all domains of government activity, is necessary.
Personal income taxes:
Personal tax burdens also matter when thinking about Canada’s appeal as a place to invest and grow a business. Unfortunately, we have become a “high-tax” jurisdiction for the most productive segments of the working population. This is evidenced by a cross-country comparison of top marginal personal income tax rates (Figure 2). The gap with the U.S. has widened appreciably since the mid-2010s, particularly for the most highly skilled and productive individuals. Importantly, Canada levies its highest personal tax rates – 53–54% in the three biggest provinces – at income thresholds far below those in the U.S. and many other competing jurisdictions.
Figure 2
To make Canada more attractive to investors, large companies, and innovators, we need both lower marginal tax rates and a sizable increase in the income threshold at which the top rate kicks in. Failure to address this aspect of Canada’s waning competitiveness will make it harder to develop and retain the talent required to run and grow our businesses and build a more innovative economy.
Reviving Investment: The Big Picture
The focus of this week’s Investment Summit is mainly on advancing big projects by attracting investment and bolstering Canada’s appeal to providers of inbound foreign direct investment (FDI) – global companies, sovereign wealth funds, pension funds, and other institutional sources of capital. But it should not be overlooked that a sustained turnaround in business investment will take more than dialing up inbound FDI or moving ahead with a handful of new industrial and infrastructure projects. It also involves creating conditions in which more of Canada’s two million plus enterprises will choose to deploy capital at home – to grow their businesses, develop new products and services, and re-invest in their current Canadian facilities and operations.
These latter categories of investment are captured by what Statistics Canada refers to as “gross fixed capital formation,” which for our purposes consists of investment in non-residential structures (including engineering infrastructure), machinery and equipment, advanced technology products and processes, improvements to land and structures, and intellectual property.
In 2025, gross fixed capital formation – leaving aside the housing sector – amounted to approximately $586 billion (in nominal Canadian dollars). Of this, non-residential structures accounted for the largest portion of new investment, followed by machinery and equipment and intellectual property products. Most non-residential business investment in Canada does not involve spending on large projects (e.g., pipelines, transmission lines, mines, mills, or factories); instead, it reflects decisions by Canadian-based companies to expand their business and allocate more capital to their existing operations. A serious effort by policymakers to improve the Canadian “investment climate” must not overlook this important point.