Debt is a Major Hurdle to Growth: Canadian Chamber statement on today’s StatsCan CSBC data

(OTTAWA) – May 28, 2021 – The Canadian Chamber of Commerce’s senior director of tax and financial policy, Patrick Gill, released the following statement in response to the release of today’s Canadian Survey on Business Conditions from Statistics Canada.

“Business investment will play a critical role in whether the economy emerges from the pandemic with purpose or merely muddles along as it did following the Great Recession.

Historically speaking, the odds are not in our favor because Canada’s rate of business investment has consistently been among the lowest in the OECD.  Similarly, Canadian businesses had some of the largest private debt loads among G20 countries prior to the pandemic.

As we look forward to a time after COVID-19, the ability of businesses to use debt to spur investment seems increasingly tenuous. Last quarter, Statistics Canada’s Canadian Survey on Business Conditions (CSBC) found 40% of Canadian businesses could not take on additional debt and 26% of Canadian businesses were unsure about their ability to take on additional debt. In other words, two thirds of Canada’s businesses had no debt options for investment. While 15% of business this quarter reported they could not take on more debt, there is still uncertainty around future revenues and how long businesses can survive.

According to today’s CSBC results for the second quarter, the odds for a business investment boom look even worse. The data shows that lack of confidence, uncertainty in future sales, cash flow and expectations of being turned down are the three biggest barriers to businesses for fueling business investment when the economy reopens.

Canada must collectively become growth-minded when the pandemic ends – avoiding its historic 2% growth trap. While 2% growth reduces the federal deficit, it allows the federal debt to grow and constrains economic opportunity for all Canadians.

To counter the debt load hurdle and unlock business investment for growth, three things are required:

1. Reopening the economy and avoiding further lockdowns by leveraging public health infrastructure, such as vaccines and rapid tests. Simply put, opening leads to growth, consumer spending and business confidence in future sales. Jurisdictions that leveraged public health infrastructure to remain more open, such as Australia, are showing good performance in the areas of consumer spending and business confidence. 
   
2. Being more ambitious in fixing Canada’s costly and burdensome regulatory environment. According to Statistics Canada’s Survey of Regulatory Compliance Costs, 2 times the number of businesses said the amount and complexity of mandatory government paperwork had increased versus stayed the same last decade. Improving Canada’s regulatory environment would reduce business costs, support cash flow and unlock new productive investments. 
   
3. Addressing Canada’s uncompetitive tax rates on capital. For instance, while the recent federal budget moves forward with accelerating capital cost allowance (CCA) deductions for Canadian-controlled private corporations on a temporary basis, the measure should be extended to publicly traded firms, as is typical under the CCA system. 

About the Canadian Chamber of Commerce – Because Business Matters

The Canadian Chamber of Commerce helps build the businesses that support our families, our communities and our country. We do this by influencing government policy, by providing essential business services and by connecting businesses to information they can use, to opportunities for growth and to a network of local chambers, businesses, decision-makers and peers from across the country, in every sector of the economy and at all levels of government, as well as internationally. We are unapologetic in our support for business and the vital role it plays in building and sustaining our great nation.

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For more information, please contact:

Phil Taylor
ptaylor@chamber.ca