How to bring investment back to Ontario
The start of a new government’s term in office represents a window of opportunity to address pressing problems. In Ontario, Premier Doug Ford’s still-new Progressive Conservative government has many challenges to choose from.
So the question of what to prioritize is critically important. A top priority should be fixing one of Ontario’s most longstanding policy challenges—weak business investment in the province.
Ontario’s challenge in this area is substantial. One Fraser Institute study authored by Philip Cross, a former high-level official at Statistics Canada, showed that business investment in 2017 still had not recovered to pre-recession levels (from before the financial crisis of 2008/2009). In other words, we’ve seen a decade of stagnation and even decline in business investment.
To be clear, a lack of investment isn’t just a matter of concern for economists or business executives—it has a profound negative impact on the economic fortunes and well-being of Ontarians at all income levels. Business investment is the lifeblood of any economy’s long-term growth, and ultimately helps drive job-creation, wage growth and the quality of economic opportunities available to Ontarians.
This reality was made clear by a more recent Fraser Institute study analyzing Ontario’s economic performance compared to other provinces. It showed that on job-creation, wage growth and government debt accumulation Ontario ranked at or near the bottom among the provinces. Again, the province’s weak performance in attracting business investment helps drive all of these poor outcomes.
So we know what the goal should be—get businesses and entrepreneurs more excited about investing in Ontario, starting new businesses and expanding existing operations. But how?
There’s no one answer. But lightening the tax burden on businesses would be a great place to start. Recent federal tax policy changes in the United States have made that country a much more attractive destination for investment. Ontario could similarly help promote investment growth with business tax relief of its own.
Of course, some will complain that business tax cuts only benefit “the rich,” but the evidence to the contrary is overwhelming. Economic research clearly shows that lower business taxes tend to result in higher wages for employees. In short, if a person owns shares in, works for, or buys things from Ontario-based businesses, they stand to benefit from meaningful business tax reform.
But taxes aren’t the only costs companies consider when deciding where to invest. Ontario’s high electricity prices also deter companies in industries that use a lot of energy for their operations. It’s hard to believe, but Ontarians once enjoyed some of the lowest power prices in North America—policy reforms aimed at regaining this advantage, or at least taking steps in this direction, are long overdue after a long period where affordability has been deprioritised (to say the least) as an objective of electricity policy.
Finally, nothing will be easy about renewing business investment in Ontario, and there’s no silver bullet. However, if the Ford government adopts a laser-like, evidence-based approach to this crucial issue, it will likely convince investors that Ontario is indeed open for business again.