Canada Lags Behind G7 Howe Report Says

Commentary, Frontier Centre, Role of Government, Taxation, Worth A Look

With the exception of Alberta, Canada is badly lagging the rest of the industrialized world in boosting its standard of living, says an analysis produced by a respected think-tank.

The portrait is particularly ugly when Canada’s record is compared to its G7 peers and the United States, the C.D. Howe Institute said in a note released yesterday.

The institute justifies its findings by calculating how much new capital — or money deployed to upgrade physical assets such as machinery and equipment — Canada invests on a per-employee basis. Evidence suggests there is a direct link between capital deployed per worker and a country’s standard of living.

The institute compares Canada’s performance on this measure against other Group of Seven countries and members of the Organization for Economic Cooperation and Development.

“The short message from this comparison is that Canada is not keeping up,” the analysis said.
The institute said that by its calculations, roughly $11,000 of new capital would be deployed per worker this year. That compares with $11,700 per OECD worker, $12,300 per G7 employee, and $13,300 per U.S. worker.

“New capital investment in plant and equipment allows Canadian workers to earn more and live better at less cost in time, effort, and environmental stress,” the report’s authors say. “Sadly, however, the performance of most Canadian provinces, and of Canada as a whole, in fostering new capital formation is not impressive.”

The exception to the rule, however, is Alberta. In Alberta, workers are expected to receive more than $2 of investment for every $1 invested in the United States. The next best province is Saskatchewan, but its workers would obtain only 88¢ for every $1 spent in the United States.
Furthermore, the developing economic powers of Brazil, India and China are starting to catch up with Canada. Investment per worker in those countries has gone from 16% to more than 30% of Canada’s total in the last 15 years.

“Canadians should realize that their own place in the forefront of the world’s societies depends on zztheir own ability to attract investment,” the analysis said. “Canada is becoming a relatively small fish in a fast-growing pond. Canadians need to learn to swim faster in this more competitive environment.”

The federal government acknowledged that business investment is lagging in its Advantage Canada economic strategy, tabled last November. The document recognizes that businesses in other OECD countries are investing on average more in machinery and equipment than do Canadian businesses. The strategy recommends that Canada recognize that challenge if it is to boost economic growth prospects in the future.

Efforts aimed at boosting capital spending should be focused on the tax regime, the institute recommended. Taxes, on personal and business side, are generally higher in Canada than the rest of the industrialized world. Moreover, economists have long argued there remain taxes on capital that dissuade investors from spending money on upgrading assets.