In a report entitled “Capital Gains: How Canada can unlock the $1.8 trillion it needs for growth,” RBC shares a demoralizing figure: around $1 trillion in capital outflows have occurred from 2015 to 2024. The report states that for every dollar of foreign direct investment entering the country, two dollars fled.
RBC reports that Canada has experienced a 10-year capital recession, with tepid business investment, stalling productivity, and a declining standard of living.
Business investment per worker and real GDP per capita growth reached historic lows in Canada.
RBC says the reasons for the economic malaise are excessive regulation, permitting challenges, policy uncertainty, low risk tolerance, and more. While capital exists domestically, it is not being put to work.
On a more positive note, RBC claims that Canada is emerging from the capital recession. As the title belies, there is an opportunity for Canada to lead the G7 in growth – the $1.8 trillion investment opportunity. The report says that “foreign direct investment in Canada hit nearly $100 billion, the highest it’s been since 2015.”
The authors declare that Canada must unlock a new capital formation framework while describing the opportunity as immense. They propose the following:
- A brownfield to greenfield asset recycling program
- Scale-enabling procurement
- Reforms to the corporate income tax and foreign investment regimes
- Leveraging of state capital
RBC says that entrepreneurship and risk-taking should be rewarded, but dodges difficult questions about high personal taxes and expensive government entitlement programs that siphon capital from the private sector.
Personal income taxes account for approximately 37% of total government revenues, more than in any other G7 country. Top rates can exceed 50%. Half of all government spending is on health care and pensions/income support. These are very difficult things to change.