Budget 2024

Tax and spend fiscal plan will inhibit growth

As published in The Financial Post

It is politically expedient in Ottawa these days for the federal government to express disappointment that Canadian companies don’t invest more in Canada. Ottawa says it wants Canadian businesses to invest in Canada, but in the next breath, warns those same companies that returns on their investments may be capped.

This contradictory sentiment was taken to a new level last week when Industry Minister François-Philippe Champagne confirmed the government wants to encourage business investment but, at the same time, “tackle” the profits of Canadian companies and entice new foreign competitors to reduce their total market share.

It is worth asking if the government understands why companies, both Canadian and global, invest in some markets and not others. If companies want to grow, why would they do so in a jurisdiction where the government suggests it should decide how much profit companies make and how much market share they have?

Canada does not have corporate monopolies; we have global champions in competitive industries. We have multiple successful companies in every sector — including energy, banking, groceries, transportation, telecom — and none with a majority share of the national market. This is impressive when you consider Canada’s population is smaller than California’s.

Canadian companies compete against each other across the country and, in many cases, around the world. They also compete against global companies, including state-owned or those subsidized by foreign governments. In order for Canadian companies to compete and win on the world stage, they mustn’t be penalized here at home.

To be clear, Canadian companies are succeeding internationally. Travel to any major city and you will see Canadian brands on buildings and billboards. From Mumbai to Monterrey, from Houston to Hanoi, our businesses are growing. And as they grow, they become more integrated into the value and supply chain networks that criss-cross the globe.

If government wants Canadian-headquartered companies to invest more of their global revenues here, it should focus on providing a coherent economic growth strategy and eliminate regulatory barriers to investment. After all, we describe investment capital as liquid because, like water, it flows along the path of least resistance.

Therefore, when federal officials talk of the need for greater competition, they must realize they need to compete better with foreign governments intent on attracting capital. This shouldn’t be a surprise. As ministers lead trade missions to high-growth markets, including those in the Indo-Pacific, they see firsthand how host governments solicit Canadian investment.

And, contrary to what some believe, this isn’t just about bigger companies. What incentive is there for small to medium-sized companies, entrepreneurs and innovators to scale up, commercialize, or incorporate in Canada if the government imposes a ceiling on success? Today’s modest startups are tomorrow’s multinationals.

If the government truly wants to encourage more business-led growth in Canada, it needs to focus on improving the competitiveness of the country’s investment climate. To be clear, this is not about subsidies, but rather sensible public policy that offers both greater regulatory efficiency and a more vibrant innovation ecosystem.

The government should start by streamlining the process to approve major projects to strengthen energy security and trade-enabling infrastructure. Budget 2023 contained a promise to unveil a concrete plan to expedite approvals and permitting by the end of last year, and yet no plan has been proposed, let alone put in place.

A second step would be to put in place a tax framework that promotes, not punishes, business investment. Government should stop threatening profitable companies with the potential imposition of additional taxes on their after-tax revenues. Without profits there are no companies and without companies there are no jobs. It’s that simple.

Instead, Ottawa should follow through on reforming the Scientific Research & Experimental Development (SR&ED) tax credits and deliver on its long-promised tax credits for energy transition projects such as carbon capture, utilization and storage (CCUS). If implemented, investments would soon follow.

Deputy Prime Minister and Finance Minister Chrystia Freeland said she believes in Canadian headquartered companies, but they, in turn, need to believe in Canada. Canadian businesses DO believe in Canada and in Canadians. What they have a harder time believing is the government wants to attract, not attack, successful companies.