Nearly a third (32%) of Canadian small businesses expect their capital investments to decrease over the next two years, finds a new report from the Canadian Federation of Independent Business (CFIB).
Additionally, only two in five are making investments to improve their productivity.
The report, Removing roadblocks: Unlocking small business capital investment, said that, when adjusted for workforce size, business investment in machinery and equipment declined by 16% — equivalent to $1,178 less per private sector worker— between 2013 and 2023. This drop in investment is exacerbating Canada’s productivity challenges, which already lags behind most G7 countries, it added.
“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,” said Bradlee Whidden, senior policy analyst for Western Canada and report co-author. “We will all feel the impacts, that’s why governments need to act now, and fast.”
The CFIB is Canada’s largest association of small and medium-sized businesses with 100,000 members across every industry and region.
Over two-thirds (69%) of businesses said equipment costs are deterring them from investing in capital, followed by the high cost of doing business (56%) and cash flow constraints (50%). Nearly four in 10 small businesses (37%) in British Columbia, Saskatchewan, and Manitoba report that their inability to write off Provincial Sales Taxes is a barrier to increasing their investments, said the report.
“To tackle Canada’s stagnant productivity and encourage more investment, CFIB is calling on the federal government to simplify and make the Accelerated Investment Incentive and Immediate Expensing measures permanent to allow faster write-offs, as well as abandon its increase in the capital gains inclusion rate to 66.7% from 50%,” said the CFIB.
It said all levels of government should:
- Reduce corporate income tax rates, allowing businesses to reinvest more of their income.
- Prioritize faster permitting, processing, and impact assessments for large infrastructure projects especially in capital-intensive sectors like energy.
“All governments have a role in tackling Canada’s productivity emergency by adopting policies that make it easier for businesses to make valuable investments,” said Francesca Basta, CFIB’s research analyst. “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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