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The investment crisis that nobody talked about in the 2021 campaign – The Globe and Mail

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Much of the debate in the 2021 campaign focused on the next couple of years – if not the next couple of months.

Throwing money at the housing market, taxing house flippers, half-price restaurant meals: all the parties had promises that were meant to appeal to enough voters for just long enough to squeak by in a tight race or two.

The long view has been conspicuously absent. A better campaign would have taken seriously the issue that the C.D. Howe Institute examined in a report issued on Thursday about the bad-and-getting-worse outlook for business investment in Canada.

Since 2015, the amount of capital for each worker has been at best stagnant, and the rate of gross investment weak, the study says. Even worse, business investment in Canada has lagged the United States and other countries. In the second quarter of 2021, businesses invested just 50 cents in Canada for each available worker for every such dollar invested in the United States.

Coping with the debts of the pandemic. Battling climate change and transitioning from fossil-fuel dependency. Bolstering the health care system as aging baby boomers enter their 70s and 80s and the labour force shrinks. All of that will require money, which will require growth, which will require higher productivity – which will require higher investment.

The typical rebuttal is to chalk up the problem to the woes of the energy sector. But the study notes that investment in the U.S. energy sector fared much better than in Canada, indicating that it’s not just the commodity price environment at work in this country. Co-author and institute chief executive officer William Robson said in an interview that another key issue is that the decline in oil patch investment has not been balanced by a rise in investment in other parts of the economy that could create high-productivity, high-earning jobs.

Mr. Robson notes other warning signs: companies focused on distributing capital through share buybacks, for instance, and pension funds snapping up assets outside of Canada.

A realistic debate would start with the acceptance that Canada needs to have a marginal corporate tax rate no higher than that of the United States, he says. But he acknowledges that such an approach is likely out of step with the populist temper of the times. “There’s not a lot of sympathy for business. There’s not a lot of sympathy for people that have made a lot of money, however they made it,” says Mr. Robson.

Taxing questions

In a recent letter to the editor, Karim Fazal contends that taxes on higher earners can boost economic growth, and allow the rich to get richer, citing a 2014 study from the Organization for Economic Co-operation and Development on income inequality. Failing to reduce income inequality can reduce economic growth, he adds. So, is taxing the rich the way to faster economic growth?

That’s not quite what the OECD said. The 2014 paper did indeed conclude that income inequality cuts into economic growth in the long run. But the OECD said it is primarily the gap between the lowest earners and the rest of society that is responsible, not the gap between high earners and everyone else. So, reducing the wealth of the 1 per cent, as a goal, doesn’t boost growth. The paper did say that tax increases on the wealthy don’t harm economic growth, although it went on to note that closing loopholes rather than raising rates could be both more efficient and fairer.

Reducing the gap between lower earners and the rest of society is what will boost the potential of an economy, the OECD states. But that goes beyond mere income transfers, and includes ensuring access to high-quality education and health care. Those policies increase social mobility and “create greater equality of opportunities in the long run,” the OECD paper states.

So, the key question is not how high taxes are on the rich, but how great opportunities are for the poor.

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Deflated expectations: Capital Economics has revised upward its outlook for inflation in Canada in the next few quarters, pointing to persistent supply disruptions in North America and the sharp jump in maritime freight costs globally. In a research note issued last week, the consultancy now says it expects that inflation will remain near 4 per cent until March, 2022, rather than declining to 3 per cent by then as it had earlier predicted. However, senior Canada economist Stephen Brown wrote that he still forecasts inflation easing to less than 2 per cent in the second half of 2022, as freight rates revert to more normal levels, energy-specific inflation tumbles and the rate of increase in new house prices declines.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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S&P/TSX composite little changed in late-morning trading, U.S. stock markets down

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TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.

The S&P/TSX composite index was up 0.05 of a point at 24,224.95.

In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.

The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.

The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.

The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.

This report by The Canadian Press was first published Oct. 10, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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