Fraser Forum

Rising cost of doing business in Ontario chasing away business investment

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Rising cost of doing business in Ontario chasing away business investment

After more than a decade of comparatively weak economic performance, there are finally some green shoots for Ontario’s economy. Unemployment in the province is at its lowest in 16 years, and the province is expected to be near the top of the country in economic growth this year.

Given how difficult economic circumstances have been in Ontario for a long time, any good news about provincial economic performance is welcome. However, it’s important to recognize there are still significant fundamental problems with the province’s economy that will likely need to be addressed for the province to generate the type of strong sustained economic growth necessary for the province to retake its historical place as one of Canada’s strongest economies.

One of the most important reasons to be concerned about Ontario’s medium- and long-term growth prospects is the province’s continued difficulty in attracting business investment, a problem documented in a new study authored by Philip Cross and recently published by the Fraser Institute.

Attracting business investment is crucial for the long-term health of any jurisdiction’s economy. So it’s worrying that in this crucial area, Ontario still hasn’t recovered to pre-recession levels. Firms plan to invest $50.9 billion in Ontario this year, down from $53.8 billion in 2008.

The investment woes are particularly evident in manufacturing—an important industry in Ontario that’s still the third largest employer in the province despite its recent difficulties. Manufacturing sales have remained essentially unchanged since 2003 in Ontario, while in Quebec they grew by 14 per cent and by 20 per cent in British Columbia over the same period.

One reason Ontario is struggling to attract business investment is the rising cost of doing business in the province. A few factors driving costs up include high electricity prices, high personal income tax rates and high unit labour costs—which will only get higher when the minimum wage increases quickly over the next 18 months, as the Wynne government now plans.

If business investment remains weak, it will undermine Ontario’s prospects for sustainable economic growth over the long term. Policy changes that reduce the cost of doing business in Ontario can help facilitate increased business investment, which in turn can help drive job-creation and market-driven income growth in the years ahead.

 

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