(Toronto) Stephen Poloz is concerned about investment levels in the Canadian private sector and says investment has been hampered by increased government spending and volatility due to trade relations with the United States.
The former Bank of Canada governor spoke Thursday at an Economic Club of Canada event in downtown Toronto, alongside former federal Finance Minister John Manley.
Mr. Poloz says some actions taken by the federal government are contributing to lower business investment rates and productivity growth in the private sector. The former governor cited the increase in the capital gains inclusion rate.
“We got to the point where there wasn’t as big a windfall to cover all the things they wanted to do this time around. So they had to raise some sort of tax,” he said.
“All economists will tell you, all things being equal, increasing the capital gains inclusion rate is not the best time in the context to invest. But the only good news about it is that they did it instead of ignoring their own fiscal parameters or their own budgetary safeguards. »
In recent years, the federal government has implemented what it calls fiscal safeguards in its budgets to help guide its approach to its finances, set limits on deficits and avoid fueling inflation.
“If they abandon the budgetary safeguards […] we are taking a much greater macroeconomic risk,” Mr. Poloz said.
Trade relations with the United States, which have at times turned frosty in recent years, have also hampered investment, he argued.
After Donald Trump was elected president, his decision to abandon the North American Free Trade Agreement and eventually renegotiate it as part of the Canada-United States-Mexico Agreement hurt investment in Canada, said Mr. Poloz.
“If you look at the charts, that’s when you’ll see a drop in investment,” he said, adding that companies have decided to invest more defensively in the United States.
Mr. Poloz said he believes Canada “does not pay enough attention to trade,” particularly its relationship with the United States.
“That’s where I think we fail,” he said.
For his part, Mr. Manley argues that productivity would improve with more investment, but that Canada is failing to help its businesses reach a scale that would allow them to be highly productive.
“You need to create an investment climate where businesses are confident about where they want to invest and where they feel that Canada has a comparative advantage that will benefit them if they invest and have access to markets,” he said. he explained.
The remarks come at a time of growing concern about the country’s productivity levels.
In March, a senior Bank of Canada official said the need to improve productivity had reached a “level of urgency” with inflation becoming an even greater threat to the economy.