Investor confidence is waning. Here’s three ways Ottawa can restore it

As published in The Globe and Mail

Canada’s productivity crisis has been a hot topic of conversation recently as economists and policy experts increasingly sound the alarm about the nation’s falling per capita income levels.

The debate can seem complex and disconnected from everyday life – which is why politicians have often shied away from embracing a productivity agenda.

But it’s an agenda that remains critical, nevertheless. Our wages and living standards are directly tied to our national productivity – the value of goods and services Canadian workers produce per hour of work. The more productive we are, the higher our wages can be. Conversely, if we allow our productivity to continue to decline, so will our standard of living.

Building a higher-productivity economy that benefits workers will require us to boost our capital investment and become more technology-driven. Just like a carpenter won’t hit their full earnings potential without the right tools, our economy will fail to meet its productive potential if we don’t invest in machinery and equipment, infrastructure and innovation.

And while complex and multifaceted, the challenge is hardly abstract or academic. Government decisions frequently have real-world effects on investment and productivity, whether intended or not. It’s not hard to find instances of policy and political uncertainty stifling the willingness of companies to invest.

In the coming weeks, the federal government faces a series of crucial decisions that could shape Canada’s investment outlook for years to come. Here are a few areas where the stakes are high.

Taxes and spending

Canada’s businesses face significant tax uncertainty, which is dampening investment. The federal government has an opportunity to address this in its upcoming fiscal update.

For three years, Prime Minister Justin Trudeau’s government has tapped into business income to fund new spending, pushing corporate tax revenue to the highest share of GDP in five decades – a considerable disincentive for investment. Any signals of further fiscal expansion will only heighten anxiety in boardrooms and curb businesses’ willingness to spend.

Worse still, these taxes have been applied in a haphazard manner, leaving executives wondering what will come next. This unpredictable environment, coupled with rising political uncertainty, makes long-term planning and investment a challenge.

The government needs to adopt a more transparent, long-term approach to its plans for the corporate sector. At the very least, it should provide businesses with some predictability. The constant pitter-pattering in the fiscal cupboard has unsettled many. Finance Minister Chrystia Freeland has a choice: she can either confront this issue or sidestep it. But either way, investment will be affected.

Energy

Canada’s energy sector remains caught in a web of overlapping rules and regulations, creating an expensive and incoherent policy framework that risks prolonged legal battles and stalled investment.

In the coming weeks, Ottawa is expected to release draft regulations for an emissions cap on the oil and gas sector and finalize clean electricity regulations aimed at decarbonizing the grid starting in 2035. Industry leaders have expressed serious concerns that these policies could undermine investment in the sector, including investment in decarbonization efforts.

A report by S&P Global earlier this year estimated that the emissions cap could result in a $60-billion reduction in capital investment over the next decade. That’s a significant blow to the economy.

The government should be transparent about the economic effects of this measure, with respect to Alberta’s economy.

Telecoms

In August, the Canadian Radio-television and Telecommunications Commission introduced sweeping regulatory changes, allowing major incumbents to access each other’s fibre networks for the first time.

Previously, Canadian policy allowed smaller players to use the networks of larger incumbents. The new rules effectively turn even the big telecom companies into resellers of each other’s infrastructure.

While the aim is to lower consumer costs and increase competition, these changes are likely to reduce investment in digital infrastructure, including in rural areas, where high-speed internet is desperately needed.

Why would companies invest in expanding high-speed networks if they’re forced to share them with other big incumbents at rates set by the regulator?

The CRTC decision is currently under review by the federal government. Should they choose to move forward, they need to be forthright about the impact on capital spending in the sector.

Businesses are closely watching for signals about Canada’s investment climate, and the implications of the government’s decisions are potentially significant. The telecom and oil and gas sectors, for instance, represent one-sixth of all capital spending in the country.

Policy makers have the authority to set priorities, but Canadians deserve transparency about the trade-offs being made. When policies overlook the impact on investment, the cost is borne by the nation’s long-term economic health. We need to be candid about that.