From India to Australia to Japan, the Prime Minister has been traveling the globe to woo investors and close trade deals in an effort to usher in a new wave of investment in Canada. Even the United States has taken note. But Canada still has its work cut out to get anywhere close to its investment ambitions.
Last year, the Government of Canada said it expected the budget to enable $1 trillion in investment over the next five years, half of that coming from the private sector. Driving this is a mix of policy changes, incentives, and spending tied to “capital-enabled economic growth.” As the Prime Minister recently told foreign business leaders, Canada is now the place to invest: it’s slashed red tape, cut taxes, and is committed to moving forward major projects quickly.
But so far, it’s the same old same old. Last year, the private sector put around $600 billion into capital investments including new machinery, technology, and both residential and non-residential construction — just 3% more than the year prior. This year, growth looks similarly lacklustre. Recently released industry-level estimates of capital spending, including both private and public sector dollars, suggest investment will limp along again this year, growing by just 4%.
Even that growth may be overstated. Government capital spending, which has outpaced the private sector for the past three years, may be masking weakness in business investment. Industries most closely tied to government spending, such as public administration and utilities, were among the fastest growing, while sectors like manufacturing flatlined. And because these industry estimates cover only non-residential investment, they exclude what could become another drag as CMHC expects housing construction to decline through 2028.
If Canada is to reach its goal, the private sector will need to ramp up capital spending by a lot and quickly. Every year it languishes pushes the target further out of reach. If investment crawls along as anticipated this year, it will need to see 11% average annual growth over the next four years to meet the government’s goal — more than double the pace seen in recent years and a level Canada has never been able to sustain going back as far as comparable data exists.
That’s going to be an uphill battle to say the least. For starters, many factors beyond Canada’s control are weighing on big and long-term investment decisions. But these are the conditions under which the target was set.
The bigger issue is why investment has been so weak until now. And it’s no mystery. For years, businesses have said that the regulatory system is the biggest barrier to investment in Canada, and now we have even more international evidence backing that up.
Despite some small changes, including Bill C-5 to move along some major projects more quickly and the recent Red Tape Review, no major systemic reform has been made in this area. No amount of tinkering around the edges will fix that. To see the investment the federal government wants, and the country needs, Canada will have to do the real, hard work of regulatory reform. The reward will be worth the effort. Budget 2025 estimates that enabling this additional investment would generate significant economic benefits, including meaningful improvements to Canadians’ living standards.
About this Series
Business investment is a key driver of economic growth and Canadian prosperity. As the federal government’s Budget 2025 noted, “Canada needs a sea change to reverse Canada’s history of weak private sector investment.”
This EconMinute is part of a multi-part series looking at the regulatory barriers underlying Canada’s investment challenge, and what’s needed to meet the federal government’s investment ambitions.
The series sets the stage for the release of From Barriers to Breakthroughs. This is a plan for system-wide regulatory reform, including where to start, what to fix, and how to make reform endure. Grounded in real-world business experience, its objective is to set out a practical path forward to build lasting, system-wide reform, unlock investment, and support long-term prosperity.
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