The Conference Board on Weak Business Investment

I do not know if the Conference Board intended its latest release on sluggish investment in machinery and equipment to be taken up during the election campaign. However, as Canadian Press reports:

The Conference Board report comes at a time when the issue of corporate taxes is a key demarcation point among the parties in the election campaign, with the Conservatives favouring lower taxes to boost investment and the opposition parties calling for the rate to be hiked.

Labour economists such as Jim Stanford and Erin Weir, as well as the Canadian Centre for Policy Alternatives, have published charts showing investments did not increase as combined federal-provincial corporate tax rates slid from about 42 per cent at the turn of the century to the current 28 per cent. . . .

The perceived lack of payoff for the many carrots thrown at firms has frustrated policy makers. Finance Minister Jim Flaherty has on several occasions urged firms to play their part. . . .

[The Conference Board’s Glen] Hodgson says the issue of why Canadian firms have lagged behind for such a long time is complex, but he believes most business decisions are rational. “It’s not a question of blame.”

I agree with Hodgson that it is not a matter of blaming or jawboning corporate Canada. Businesses do try to make rational investment decisions and corporate tax rates have little effect on those decisions.

- Erin Weir is Senior Economist with the International Trade Union Confederation and a CCPA Research Associate.