Canada Needs a Private Investment Revolution

The Carney government has moved with impressive speed since taking office in March, deploying a mix of industrial policy tools and crisis response measures. The Major Projects Office will fast-track nation-building projects. “Buy Canadian” procurement policies aim to support domestic suppliers. A $5B Strategic Response Fund has been set up to support tariff-hit sectors. Liquidity measures are helping businesses weather trade disruptions. Yet beneath this surge of public-sector activism lies a more fundamental issue: creating the conditions that would unlock private sector investment, the true driver of productivity growth and economic resilience.

A Lost Half-Decade for Productivity

The numbers are sobering. Private business investment per worker in Canada ranks among the lowest in the OECD. Business-sector productivity has been essentially flat for six years. And investment in innovation-related capital External link., machinery and equipment has remained disappointingly weak, in sharp contrast with the United States where soaring AI‑related capital expenditures are making a meaningful contribution to aggregate business investment.

To its credit, the Carney government cancelled the planned capital gains tax increase shortly after the Prime Minister took office. It has also kept in place clean technology tax credits and enhanced the Scientific Research and Experimental Development incentives, for example. On paper, the incentive architecture looks decent. In practice, however, it’s not delivering.

Messy Toolkit

The problem isn’t what’s on the books but rather perception management. What might change perceptions is policy certainty, permanence and a clear signal that the role of government is to remove barriers, not pick winners.

Canada’s depreciation regime is a case in point. Ottawa moved toward permanent full expensing about a year ago, but only for a narrow set of assets, specifically in clean technology and manufacturing. While a positive step, it is far from a comprehensive capital cost recovery strategy. Even for sectors that do benefit from full expensing, the measure ultimately hinges on future governments keeping it in place. In other words, Canada has dangled an ostensibly attractive incentive but fallen short of providing the kind of certainty businesses crave.

This stands in contrast with the United States, where immediate expensing is broad and has been made permanent under the One Big Beautiful Bill Act External link.. For firms making multi-year capital allocation decisions, and particularly those with the option to invest on either side of the border, those distinctions are significant.

Again, it’s not that incentives aren’t available. Canada offers a range of federal and provincial measures that can be generous in some cases. But for many businesses, these supports are fragmented, temporary or sector-specific. The patchwork nature of these programs reduces their effectiveness, not only because they become complex to navigate and manage, but also because they don’t always demonstrate clear, measurable results.

This was evident in Quebec’s 2025 Budget, which significantly pared back and consolidated tax credits in the name of simplification and fiscal discipline. While the government justified the move on efficiency grounds, the root issue may be less about the sheer number of incentives and more about their design and whether they credibly support sustained private investment. This may be a valuable lesson at the federal level.

Don’t Cement the Patchwork

Ottawa recently announced that certain fiscal expenditures would be classified as capital spending in the upcoming budget, a shift that would treat major incentive programs more like balance-sheet investments. This will raise the bar for accountability. Before locking these programs into a more permanent fiscal architecture, the government should first undertake a comprehensive review of their effectiveness. Some programs might be generous and well-targeted; others are fragmented, outdated or of uncertain impact. If these expenditures are to be treated like capital investments, then rigorous evaluation (including on economic return, the impact on productivity, and crowding in) should be the starting point rather than an afterthought.

A Down Payment Is Not a Strategy

The Carney government’s focus on mega-infrastructure projects and sector-specific responses to the challenges posed by US tariffs should really be interpreted as a down payment for something far more comprehensive, not the whole thing. Yes, Canada needs better infrastructure and smart responses to trade shocks. But if the goal is higher investment per worker and stronger productivity growth, public spending alone won’t cut it. The heavy lifting must come from private capital.

Europe offers a useful mirror. In his 2024 competitiveness report, Mario Draghi concluded that the EU needs roughly €800 billion in additional annual investment, 80% of which must come from private sources. His recommendations centred largely on removing barriers, including lighter regulation, faster approvals and the dismantling of internal trade frictions. Canada has taken steps in that direction, but here’s where momentum is needed to kickstart private investment:

1. Lock in tax competitiveness. Make investment incentives permanent and broad-based. Canada should not only preserve and strengthen full expensing provisions but extend them to all businesses so that the country’s tax treatment is competitive relative to that of the United States.
2. Streamline regulations. “One project, one review” is a start, but SMEs need relief too. The cumulative compliance burden is a real deterrent to expansion and risk-taking, with a Statistics Canada study showing a 37% increase in the regulatory burden facing businesses between 2006 and 2021. The study found this to be responsible for a 9% lower level of business investment in 2021 relative to the counterfactual scenario of a stable regulatory burden.
3. Continuously eliminate interprovincial trade barriers. Recent progress is encouraging, but the litmus test of these efforts will be whether the costs and frictions of operating across provinces actually fall and allow interprovincial trade to flourish. Contrary to protectionist policy applied by a nation, interprovincial trade barriers are often unintentional and a simple byproduct of fragmented regulatory policymaking. Beyond this year’s exogenous sense of urgency, governments should commit to building barrier-reduction muscle. This could be via a standing mechanism that makes lowering barriers routine.
4. Provide better visibility on labour supply. The government has recently signalled an interest in attracting skilled workers displaced by US H‑1B visa changes. At the same time, however, it is curtailing permanent resident admissions and sharply reducing foreign student intake, two of the most reliable pathways for supplying Canadian businesses with skilled talent. This mixed messaging undercuts the very confidence firms need to invest in expanding capacity and equipping their workforce with cutting-edge tools and technology.
5. Make private investment the cornerstone of its playbook. This means signalling clearly that private sector investment is the primary driver of productivity growth and economic resilience the government intends to support, rather than just government-directed capital allocation.

From Talk to Action

The federal budget on November 4 is an opportunity to shift gears. Instead of recycling campaign talking points or touting the growing list of new bureaucratic structures, Ottawa could focus on making gestures firmly establishing a climate in which businesses can invest with confidence, modernize their operations, employ the world’s brightest and best, adopt new technologies and feel a compelling drive to compete. The Carney government has shown real ambition. Now it’s time to make that ambition contagious.