The northern climate harshens

Another nail in the coffin. With Malaysia’s Petronas announcing the termination of its $36-billion Pacific Northwest Liquefied Natural Gas project, resourcerich Canada fails to achieve what Australia and United States have already done: building a global LNG industry. That’s not the only bad news. Foreign resource companies that had already invested here — Shell, Chevron, Conoco Phillips, Apache Corp. and Marathon Oil — have been bailing out of Canada, where tax and regulatory policies are increasingly hostile to business.

It is easy to simply dismiss all this as a cyclical problem, the result of lower oil and gas prices, except falling private investment rates in Canada are happening in other sectors as well. Meanwhile, resource companies, even Canadian ones, are looking to invest in the U.S. or other jurisdictions, even amid the current price challenges.

This should come as a huge disappointment to Canada’s provincial and federal governments. Growth in GDP has been great so far in 2017, helped by a low dollar, floor-scraping interest rates, U.S. growth and some recovery in the resource sector. Nevertheless, we will have a great deal of difficulty sustaining high income and job performance if private sector investment remains as weak as it is.

In some recent work in an Australian paper, Phil Bazel and I showed that Canadian private investment between 2010 and 2015 was close to 12.4 per cent of GDP, the lowest in the OECD except for Greece. About 35 per cent of that was related to the resource sector — agriculture, mining, oil and gas and forestry — while over 50 per cent of it was in services and the balance was in manufacturing. Take away Canada’s resource sector, now sufficiently burdened and beleaguered that we’re driving away investors, and our private investment performance is just horrible at 7.8 per cent of GDP, even less than in Greece. We do particularly poorly in generating private investment in the service sector compared to other countries.

Since 2015, Canada’s investment performance has continued on this abysmal (4.3 per cent) and Ireland (20.1 per cent), which both offer attractive tax and regulatory policies. Since 2014, our FDI performance has been a disaster. Even though OECD and G20 foreign direct investment has increased in the past two years, Canada’s FDI inflows have plummeted since 2014 by 43 per cent.

So what are governments doing about it? Piling on. Federal and provincial tax and regulatory policies in the past several years have decidedly become anti-business in tone.

The OECD, commenting delayed inordinately compared to Texas. These regulatory delay costs can be as formidable as fiscal costs on private investment.

New carbon levies and implicit costs associated with regulations are raising the energy and investment costs in Canada in ways investors in the U.S. and Australia need not worry about. Municipal property tax burdens on businesses are growing as local governments fail to constrain their spending while avoiding residential user fees such as tolls for roads and other municipal services.

Our corporate tax burden, moving up while the rest of the OECD declines, is now 10-per-cent higher than the rest of the OECD, and the 12th highest among all 33 countries.

Entrepreneurship is also taking a back seat at the policy table as well. Small business expansion — critical to innovation — is more heavily taxed at corporate and personal levels in Canada than in other G7 countries. It doesn’t take a PhD in economics to figure out where young entrepreneurs and skilled workers will increasingly choose to live when choosing between the large, dynamic U.S. market or a thinly populated, hightaxed Canada.

Canada’s lack of competitiveness is a burden to growth, and it’s getting worse as other countries push for pro-growth policies. If politicians continue to engage in deploying class warfare to raise taxes and browbeating business and entrepreneurial investment with onerous regulations, the message Canada sends to international investors will be “keep out.”