If Canadians weren’t familiar with the term catalyze before, they may be now. Open Parliament records a nearly five-fold increase in the use of the word from 2024 to 2025. Not surprising, this is the Carney government’s preferred term when describing its plans for activating Canada’s moribund economy and unleashing the twin forces of private and public sector investment.
But the hope of federal governments to unlock supposedly sleeping animal spirits is a long-standing one, and the problem has proven resilient. What is required is a break with models whose narrative doesn’t match results and a decision to upset cornerstones of Canada’s economic framework.
To unlock investment and corresponding productivity gains, the Carney government will need to bring real competition for markets and workers to a corporate sector that has been doing better than ever under the status quo.
Do profits drive investment?
A quick survey of moves by the Carney government on the economic policy front reveal reforms to the tax system to encourage investment, work to address regulatory barriers across borders and governments and the spinning up of public sector funding bodies to complement private sector investment.
The narrative is that Canada’s productive capacity is held back by taxation that blunts financial rewards, a regulatory system that throws sand in the gears of private enterprise and a public sector reticent to invest. For taxation in particular, the logic seems clear: Why invest if you can’t keep a meaningful portion of the profits? But recent experience at home and abroad caveats this proposed remedy for unlocking lagging investment and productivity growth.
If profit and investment move in a pack, Canada should be in the midst of an investment golden age. Changes to the taxation of corporate profits to spur investment —, both those enacted in the most recent budget bill and further cuts requested by business groups — come at a time when Canadian corporates have never been more profitable.
Since 2020, there has been sustained growth in Canadian private sector profits without a corresponding increase in capital expenditures. Except for oil and gas extraction, sectors that have seen real growth in capital expenditures — mining, utilities, transportation— have experienced relatively flat profits since the pandemic. This suggests that the link between profits and investment is not as clean as initially pitched. Amid an all-time high in macro-level profits, the tax incentives designed to drive investment brought in through Budget 2025, the Productivity Super-Deduction and SR&ED tax credit enhancements might at best change the timing of investment decisions already on the books.
But recent efforts do not bode well for this strategy. The previous government’s suite of Clean Economy tax credits, designed to encourage investment in greener economic activities such as carbon capture, utilization and storage, still a plank of the current government’s approach to climate change, have seen little uptake. As of July 2025, the Auditor General of Canada reports that Clean Economy credits related to carbon management, hydrogen development and greener manufacturing have seen no uptake.
A fair response is that these tax credits were misguided in the first place in their attempt to spur investment in sectors where the business case, \redit or not, does not exist. But what then of more broad-based efforts to use tax reform to spur investment?
The Tax Cuts and Jobs Act (TCJA) of 2017 brought in by the Trump Administration represented the largest cut to the United States’ corporate tax system in a generation. While the headline figure was the reduction of the federal corporate tax rate from 35% to 21%, the Act contained several investment-specific provisions, including a similar super deduction accelerating the expensing of capital investment for businesses. While the uptake of the tax cut has been universal, adding more than a trillion dollars to the United States’ annual deficit, the promised investment gains have been scarce. A 2023 analysis by the think tank American Compass showed that, despite allowing American corporates to keep billions more on the books, the TCJA has had no measurable impact on investment-driven growth.
What can spur investment?
If at the macro level Canadian corporates are already awash in profits, what then can Canadian policymakers do to unlock desired investment and corresponding productivity growth?
The answer, counterintuitively at a moment when Canadians have never felt less secure of their place in the world, is competition. While a sufficient return is a necessary condition of investment, it is the competitive process that keeps the flywheel in motion. The rivalrous process of competition, being chased by another firm attempting to outdo you and steal share, is what ultimately spurs companies to continue to invest in new and better ways of doing business.
Studies show that competition is a driver of productivity-enhancing investment, and the relaxing of the competitive constraint is a recipe for complacency. While academics such as Philippe Aghion make the case for a point at which competition is so fierce that it ultimately blunts competition, a market singularly obsessed with beating out the competition to win the business of customers seems like a side effect worth bearing.
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In this area, the Carney government has made encouraging moves. Efforts to reduce interprovincial trade barriers can create the conditions for greater competition among Canadian regional businesses and economies. Though rarely framed in these terms, we are exposing our own companies to greater competition. On the sectoral front, Carney is finally set to open up Canada’s infamous banking oligopoly, a move the Trudeau government set in motion.
The most recent Spring Economic Update provided a clue that this thinking might be resonating on a deeper level within the federal government. The headline of Driving Productivity and Affordability Through Competition teased a “whole of government” approach to spurring competition that is desperately needed. But, so far, what’s on offer is platitudes about red tape and a promise of future action.
To successfully drive productivity, the government must take an imaginative approach to the project of a more competitive Canadian economy.
Rather than cutting red tape, Ottawa must understand that regulation can be a powerful tool for opening markets for contestation. Long-standing oligopolies must be broken —open if not necessarily up — whether through orders to spin off business lines or regulation that erodes walled gardens. Here, the example of progress on competition in the banking sector is encouraging and cautionary. Encouraging because a growing list of firms angling to break down the gates and cautionary due to the sheer volume of sand incumbents were able to throw in the gears of the modernization of the plumbing of Canada’s banking sector.
The Carney government must also understand an underappreciated vector of driving productivity: competition for Canadian workers. While often framed in terms of vying for market share, competition for inputs is a critical driver of productivity. As the recent oil price shock has shown, make an input more valuable and you increase the incentive to reduce your reliance on it. Paradoxically, competition for Canadian workers must drive wages higher to drive the adoption of the technologies to augment their productivity.
This runs counter to Canada’s pitch as a source of high-quality, low-wage labour for companies both foreign and domestic. While the Temporary Foreign Worker Program has come under scrutiny, just as damaging to our productivity ambitions has been the discounting of our most qualified. By putting high-quality and relatively low-wage employees on offer, Canada has been able to attract businesses willing to set up branches within our borders. While this approach may have generated good jobs and recognizable logos on buildings, it has created a tension between generating the high wages that drive productivity and placating a corporate community dependent on cheap labour. Whatever the mechanism, a tighter labour market with more intense competition for Canadian workers will be key to breaking out of Canada’s persistent productivity slump.
The Carney government faces the unenviable position of breaking out of a secular productivity slump while familiar elements of our traditional economic model break away. Meeting that moment will involve breaking out of the policy responses whose narrative have fallen short of results. Allowing competition to flourish for both markets and workers is the path forward.
Keldon Bester is the executive director of the Canadian Anti-Monopoly Project and a fellow at the Centre for International Governance Innovation.
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