Fraser Forum

The finance minister said what?

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Coming out of an emergency cabinet meeting earlier this week, ostensibly called to deal with the watershed announcement that Kinder Morgan was halting all “non-essential” spending on its Trans Mountain pipeline despite regulatory and legal approvals, federal Minister of Finance Bill Morneau (pictured above) made a number of important comments worth considering.

First, to give the minister credit, he was trying to clearly and unambiguously signal that Ottawa will use any and all means at its disposal to ensure the Trans Mountain pipeline is completed, including “regulatory, legal, and financial.”

The minister also seemed to recognize the importance of maintaining a stable, reliable legal system: “We have to ensure the rule of law in this country works.”

He also said he understood the regulatory and legal hurdles that place the Trans Mountain project in jeopardy: “Clearly, we see there are regulatory hurdles. We see there have been legal road blocks that have been put up before us. We can see from the project proponent’s standpoint that they’re worried about the financial risks from the project as a result of those things.”

These encouraging comments by the finance minister were all made in the first half of the near 10-minute press briefing. Unfortunately, the second half of the briefing included worrying comments by Minister Morneau. Whereas the first half of the briefing seemed to show that both the government understands the problem and is determined to fix it, the second half of the briefing provided evidence that the government clearly misunderstands the broader crisis in investor confidence in Canada.

The critical moment occurred at 6:20 of the briefing, when a reporter asked “Are you worried that this sends a message to investors that Canada can’t get anything done?”

Minister Morneau’s response: “On the contrary, what we’re able to show right now, right here, is that we have a resolve that this project will get done. What we’re saying is that Canada works when we step forward and ensure that projects like this will happen… So now we’re ensuring this is going to happen. So for an investor sitting outside of this country they can see that this is a place to do business.”

In other words, the view of the federal government is that there’s a specific problem with this specific pipeline project rather than a broader problem with the country’s taxes and regulations.  

The minister’s comments were made despite a growing chorus of business leaders publicly (which is unusual) stating unequivocally that Canada has a broad investment crisis.

For example, Steve Williams, CEO of Suncor, one of the world’s largest energy companies, recently indicated his company is pulling back investment in Canada because of our regulatory system and general lack of competitiveness. David McKay, head of the Royal Bank, one of the country’s largest, recently urged Ottawa to act to stem the flow of capital out of the country, which he described as leaving in “real time.” Brian Porter, CEO of Scotiabank, the country’s most internationally-oriented bank, raised concerns over Canada losing its “competitive advantage” and that the Kinder Morgan decision could have a “broad chilling effect” on foreign investment.

In addition, the idea that there’s a single problem with this single project is easily dismissed by a simple Google search that provides a long list of major, high-profile projects cancelled in the last few years, including:
• Petronas’ cancellation of its $36 billion LNG project in British Columbia
• the federal government’s withdrawal of support for Enbridge’s $7.9 billion Northern Gateway pipeline
• TransCanada’s cancellation of its $15.7 billion Energy East project
• Kinder Morgan’s suspension of non-essential spending on the $7.4 billion Trans Mountain pipeline

And the idea that Canada faces an investment crisis is not just hyperbole. The data supports that investment in our country is collapsing.  For instance, according to Statistics Canada, since peaking in the fourth quarter of 2014, total business investment adjusted for inflation—excluding residential housing—is down almost 17.0 per cent. Private-sector investment in factories and other structures is down 23.3 per cent. And investment in intellectual property is down 13.3 per cent.

Investment by foreigners has already collapsed. Foreign direct investment (FDI) in Canada was $31.5 billion in 2017, down 56.0 per cent since 2013 when it totalled $71.5 billion. And the decline is even more startling if you look back to when the data series started in 2007. FDI totalled $125.5 billion in 2007, which means the decline since 2007 totals an almost unimaginable 74.9 per cent.

A 2017 study of business investment within the industrialized world ranked Canada 16th of 17 countries that reported data for business investment between 2015 and 2017. Alternatively, Canada ranked 8th within the same group of countries for the 2009 to 2014 period.

And don’t expect things to improve. StatsCan’s survey of the investment intentions of private businesses shows further declines are expected in 2018, the fourth straight year of decline.

The view of the federal government—that its current policies are not necessarily at the root of the problem—is further evidenced by the response of both the prime minister and finance minister to sweeping tax reforms in the United States. Both indicated that Canada would not respond to the U.S. tax relief measures until real evidence emerged that action was required.

The reality is that Canada is suffering from an investment crisis wherein domestic and foreign entrepreneurs, business owners and investors simply don’t see us as a hospitable, competitive place to do business. Until that changes, which would require dramatic U-turns on tax and regulatory policies by the federal and many provincial governments, Canada will continue to suffer from reduced investment and entrepreneurship.