Debt-Fuelled Consumption Belies Ottawa’s Brave Talk of Transformation

To: Canadians concerned about the federal government’s “investment” hype
From: William B.P. Robson and Mawakina Bafale
Re: Debt-Fuelled Consumption Belies Ottawa’s Brave Talk of Transformation

Even as the gap widens between feeble capital investment in Canada and surging investment in the United States, so does the gap between the Carney government’s hype about investing for prosperity and its actual pursuit of debt-fuelled consumption.

The government’s latest response to affordability concerns is the Canada Groceries and Essentials Benefit, an income-support add-on to the GST credit that increases the government’s already bloated debt.

Canadians are getting more of the perverse fiscal policy that weakened Canada’s competitiveness and prosperity over the past decade.

A decade of feeble capital investment has undermined our real GDP per person, which has lately been falling. Unemployment is up, consumer and business confidence is down, and many young Canadians feel that a house and other good things their parents enjoyed are out of reach. Economic stress is eroding confidence in our institutions, with too many Canadians in Quebec and Alberta openly questioning the value of a united Canada.

As the government itself keeps saying, Canada badly needs investment – to bolster our industrial base, develop our natural resources and move goods and services across Canada and to overseas markets more efficiently.

But that is not happening. Business investment per member of Canada’s labour force peaked in 2014, when the average potential worker enjoyed about $19,000 in new capital (all values are in 2024 Canadian dollars). The latest available data, from the third quarter of last year, show annualized investment below $15,000 – down by nearly a quarter. As explained in the latest update in the C.D. Howe Institute’s investment monitor for Canada, the United States and other developed countries, Canadian workers cannot raise their output or incomes when their tools are rusting out.

The contrast with the latest US numbers is stark. In the third quarter of 2025, US investment per worker topped $29,000 (in 2024 Canadian dollars), up more than 7 percent since 2014. For every dollar of new capital per US worker in 2014, the average Canadian worker got 70 cents. By the third quarter of last year that was down to only 52 cents.

Business investment comes in three main types: Intellectual property products, non-residential construction, and machinery and equipment (M&E). The United States has an edge in intellectual property products, thanks to its larger tech sector. Canada has an edge in non-residential construction because of our larger natural resource sector.

M&E is easiest to compare across the two countries – and is critical to Canada’s future competitiveness in traded goods. There, a dire situation is getting worse. In 2014, for every dollar of new M&E per US worker, the average Canadian worker enjoyed only 44 cents. By the third quarter of last year, that was down to a paltry 36 cents. That is correct: The average Canadian worker benefited from barely one third the new M&E enjoyed by the average US worker.

Faced with an investment shortfall versus the United States that signals eroding competitiveness and declining living standards, a government that hypes investment should be doing things to promote it, such as lowering taxes on the returns from capital spending and appropriating less of Canadians’ savings to fund its own massive deficits.

Instead, we get the Canada Groceries and Essentials Benefit, a deficit-financed handout which, as Jack Mintz recently explained in the Financial Post, claws back transfers as incomes rise, adding to already high effective tax rates that discourage its recipients from working.

The Parliamentary Budget Officer has criticized the Carney government for stretching the definition of fiscal measures that promote investment. But even the most imaginative spin doctor could not dress up the Canada Groceries and Essentials Benefit as anything other than a debt-fuelled boost to consumption.

Without stronger business investment, Canada’s productivity and living standards will go nowhere. The affordability pinch will get more painful, our ability to compete and diversify our trade will decline, and more of us will lose faith in our future.

The government talks about a turnaround from the growth-stifling policies of the past decade. But the Canada Groceries and Essentials Benefit is more of the same.

The latest numbers on Canada’s widening investment gap with the United States show how urgently the government needs to match its pro-investment rhetoric with pro-investment action.

William B.P. Robson is President and CEO of the C.D. Howe Institute, where Mawakina Bafale is a Research Officer.

To send a comment or leave feedback, email us at blog@cdhowe.org.

The views expressed here are those of the authors. The C.D. Howe Institute does not take corporate positions on policy matters.

A version of this Memo first appeared in the Financial Post.

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