Small business owners are not prioritizing boosting jobs or equipment
Last spring, Bank of Canada senior deputy governor Carolyn Rogers spoke of a “productivity emergency” that must be addressed to shield the economy from future inflation drivers.
Almost a year on and productivity is mentioned again and again as a major concern, but improving things will take investment, which the small and medium businesses that are the backbone of the Canadian economy say they simply cannot afford.
A new survey from the Canadian Federation of Independent Business reveals that almost one third of respondents say they expect to actually decrease capital investment over the next two years, and many more are finding the business conditions challenging.
The CFIB says that capital investment in business machinery and equipment decreased 16% in the 10 years from 2013 to 2023, the equivalent of $1,178 less for every worker (adjusted for workforce size), which has made the productivity crisis worse.
The three main reasons cited by poll participants as deterrents to capital investment are the cost of equipment (69%), the cost of doing business (56%), and cash slow constraints (50%). For those in BC, Saskatchewan, and Manitoba around one third also cited the inability to write off Provincial Sales Tax as a barrier to increase investments.
"If we don't improve our productivity and make it easier for businesses to equip workers with the tools and equipment they need to be more efficient, Canada risks falling behind its global competitors, losing entrepreneurs to other countries, and worsening the standard of living for all Canadians," said Bradlee Whidden, senior policy analyst for Western Canada and report co-author. "We will all feel the impacts, that's why governments need to act now, and fast."
Government action
But what does the CFIB want the federal government to do to tackle stagnant productivity and fuel investment?
Its priorities are the simplification of the Accelerated Investment Incentive and Immediate Expensing measures - and making them permanent to allow faster write-offs - and to abandon its increase in the capital gains inclusion rate to 66.7% from 50%.
It also wants all levels of government to reduce corporate income tax rates to free up more of their income for investment, and prioritize faster permitting, processing, and impact assessments for large infrastructure projects especially in capital-intensive sectors like energy.
"All governments have a role in tackling Canada's productivity emergency by adopting policies that make it easier for businesses to make valuable investments," said Francesca Basta, CFIB's research analyst. "Providing small businesses with the financial space and tools they need will increase productivity and boost economic activity, allowing for more production and lower prices at a time when Canadians need it."
