In advance of the Trudeau government’s upcoming federal budget, the economic recovery from the COVID recession remains the top priority. Crucially, even before the pandemic, Canada was struggling to attract private-sector investment, a vital component of economic growth and job creation (Bank of Canada Governor Tiff Macklem recently underscored this point). As such, any successful recovery will require a reversal of this trend.

Consider this. Between 2015 and 2019, total business investment in Canada declined by $3.0 billion (inflation-adjusted). By contrast, during the runup to the last recession (2004 to 2008), business investment increased by $60.8 billion. Moreover, the average annual change in business investment (minus residential construction) between 2015 and 2019 was -3.0 per cent compared to 7.5 per cent between 2004 and 2008.

In other words, Canada was performing much worse before COVID than before the last recession in 2008-09.

Contrary to what many might think, the decline in business investment has happened across the economy—not just in the oil and gas sector. A study of business investment in Canada in 2019, for instance, found that two-thirds of Canada’s 15 main industries experienced a decline in business investment from 2014 and 2017.

Why?

Because capital is fleeing Canada for more hospitable environments. In 2019, Canadians invested outside the country more than foreigners invested in Canada (specially, $41 billion more). In fact, we’ve seen a total net outflow of capital of $179.7 billion during the 2015 to 2019 period, suggesting that the federal government’s plan to increase investment has not worked. And yet, in 2016 then-finance minister Bill Morneau said Canada’s “circumstances for investment are ideal.” Unfortunately, several policy changes including the carbon tax, increased regulation in sectors such as oil and gas, tax rule changes that hurt businesses and record-high levels of government spending have helped create an environment where investment is collapsing.

Despite the evidence, the Trudeau government continues to ignore the role and importance of the private sector, specifically entrepreneurs, businesses and investors. The latest throne speech, which outlines Ottawa’s priorities, mentioned entrepreneurs four times (although two of the mentions referred to government programs) and the term “small business” only once—while mentioning “government” 137 times.

So, what can be done to turn things around? Look no further than Canada’s experience from the mid-1990s to mid-2000s, a period marked by lower levels of government spending, competitive tax rates, balanced budgets, declining debt and (wait for it) relatively high levels of investment. Today, we have high and rising government spending and deficits and rising debt coupled with increasingly uncompetitive taxes and increasing regulations. To improve Canada’s investment climate and our chances at recovery, the Trudeau government should immediately tackle these fiscal and regulatory issues, which deter investment, and return to the successful policies of the Chrétien era.

When capital flees Canada, the whole country suffers. Investment is key for economic growth, job creation and living standards for Canadians and their families. Attracting investment will be even more important as the country emerges from one of the worst recessions in our history. In its upcoming budget, the Trudeau government can help reverse troubling investment trends and pave a solid foundation for recovery.