Small business investment set to shrink, hurting productivity: CFIB

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Canadian small businesses are running into roadblocks when it comes to investing in their operations and that is expected to continue in the near term.

About 32 per cent of Canadian small businesses intend to slow their capital investments over the next two years, according to a recent survey by the Canadian Federation of Independent Business (CFIB).

Investments in machinery and equipment declined by 13 per cent between 2013 and 2023 when adjusted for workforce size, and CFIB said the lack of investment is making Canada’s productivity challenges only worse.

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“If we don’t improve our productivity and make it easier for businesses to equip workers with the tools and equipment they need to be more efficient, Canada risks falling behind its global competitors, losing entrepreneurs to other countries and worsening the standard of living for all Canadians,” Bradlee Whidden, senior policy analyst for Western Canada, said in a news release. “We will all feel the impacts; that’s why governments need to act now and fast.”

Canada has been struggling with lagging productivity since at least the start of the pandemic, with the country now at the bottom of the G7 when it comes to this metric. By comparison, productivity in the United States has climbed by 1.5 per cent annually since the pandemic.

“The fact that Canada’s performance has deteriorated so materially since the pandemic should be of grave concern to all Canadians, particularly younger generations,” Beata Caranci and James Marple, economists at Toronto-Dominion Bank, recently said in a report. “Without improved productivity growth, workers will face stagnating wages and government revenues will not keep pace with spending commitments, requiring higher taxes or reduced public services.”

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One problem for Canadian businesses wishing to expand is the cost of doing so, with 69 per cent saying equipment costs have been a deterrent, according to CFIB, while 56 per cent cited the costs of doing business and half pointed to cash-flow issues as challenges for growth.

In British Columbia, Saskatchewan and Manitoba, the inability to write off provincial sales taxes was a growth barrier for 37 per cent of businesses.

The CFIB is calling on governments to reduce corporate income taxes, improve the permitting process and abandon the proposed changes to the capital gains inclusion rate.

“All governments have a role in tackling Canada’s productivity emergency by adopting policies that make it easier for businesses to make valuable investments,” Francesca Basta, CFIB’s research analyst, said in the release. “Providing small businesses with the financial space and tools they need will increase productivity and boost economic activity, allowing for more production and lower prices at a time when Canadians need it.”

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EV sales in Canada accounted for 16.5 per cent of new sales in the third quarter of 2024, not far off from the goal of 20 per cent by 2026.

The projections have hit a snag, however, as the federal government recently decided to end the Incentives for Zero-Emission Vehicles (iZEV) program.

The move has prompted the Canadian auto sector to push for an end to the EV sales mandates all together, arguing that government has not done its part when it comes to building up the charging infrastructure.

Read more here.

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Today’s Posthaste was written by Ben Cousins, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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