Is an overhaul needed to spur competitiveness?
Canada’s business leaders and economists have sounded the alarm on the country’s declining competitiveness, warning that years of underinvestment and mounting tax and regulatory burdens have left Canadian firms struggling to keep pace with global peers.
Despite recent government initiatives to boost affordable housing and infrastructure, experts say the core issues stifling productivity remain unaddressed.
“Competitiveness is a necessary ingredient for success across the entire spectrum of economic agents – a competitive workforce needs competitive employers. This cannot occur absent a competitive system of infrastructure, regulation and taxes to support growth,” said Beata Caranci, senior vice president and chief economist at TD Bank.
Francis Fong, managing director and senior economist at TD, echoed the sentiment, noting that “past efforts of tax and regulation reform have failed to meaningfully reduce compliance burdens and promote economic and business dynamism – a must to seriously address the root causes of Canada’s ailing productivity.”
Investment per worker in Canada now ranks near the bottom among the Organisation for Economic Co-operation and Development (OECD) countries, and the gap with the United States has widened significantly since 2010.
According to TD Economics, Canada’s capital deepening has never recovered from the oil price crash in 2014 and has been stagnant since 2019. “Insufficient investment limits the ability of Canadian firms to scale and compete globally,” Caranci said.
Business leaders consistently cite tax and regulatory compliance as two of the largest barriers to investment. A recent KPMG survey found that 58% of executives identified comprehensive tax reform as a top priority for improving competitiveness. Yet, the last major tax reform in Canada dates back to the 1960s, with only incremental changes since.
It resulted to a tax code now 3,690 pages long, and a regulatory environment so complex that a Transport Canada-KPMG study logged 305,500 regulations applying to industry—a 36.6% increase since 2006.
While the federal government has enacted measures like the Red Tape Reduction Act, industry consultations suggest these efforts have made “little to no impact on reducing regulatory burden.”
The OECD ranks Canada 26th out of 38 for product market regulation, driven by public ownership distortions and barriers to foreign investment.
Broader issues compound the challenge. Canada’s small, geographically dispersed market, internal trade barriers, and weak commercialization of R&D further hinder growth.
Data from the Survey of Financial Security show a consistent decline in business equity as a share of household assets, raising questions about the sustainability of relying on business growth for personal wealth gains.
The path forward, experts argue, requires a comprehensive approach: broadening the tax base, lowering statutory rates, and targeting regulatory reviews at rules that impose real costs on businesses.
“Canada needs to treat the plummet in business investment with the same urgency it treats other crises and address all contributing factors,” Caranci said.
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