The Decibel - Carney’s big bet for $500-billion in private investments

Episode Date: November 10, 2025

A big part of the federal budget rests on the assumption that its measures will spur the private sector to invest in Canada…a lot. It’s projecting a half-trillion worth of investment. But at a time when Canada is suffering from sluggish productivity and the impact of U.S. tariffs, how realistic is it to expect businesses to invest?James Bradshaw covers institutional investing for The Globe and Mail. He explains how the government is trying to spur 500-billion dollars in investments from the private sector, and how something called a ‘productivity super deduction’ is meant to fix an issue that has long plagued the country.Questions? Comments? Ideas? Email us at [e-mail] Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Talk to any expert on Canada's economy, and before long, they'll start talking about our productivity problem. To be clear, it's not that Canadian workers aren't working hard, it's that Canadian companies aren't investing enough in the tools needed to do more work quicker. An economists believe this is slowing down Canada's growth. In last week's budget, Mark Carney says his government has figured out a solution to this problem. James Bradshaw covers institutional investing for the globe. He's here to explain how the government is trying to spur

$500 billion in investments from the private sector and how something called a productivity super deduction is meant to fix an issue that has long plagued the country. I'm Cheryl Sutherland, and this is the decibel from the Globe and Mail. Hi, James, thanks for coming on the show. Hey, Cheryl. Glad to be here, thanks. So Prime Minister Mark Carney's first budget laid out tax incentives and investments that the government said would lead to $1 trillion in public and private sector money. And Ottawa wants the private sector to invest $500 billion of that amount in the next five years.

So before we get into how they see this working, we have to address what's seen as a perennial problem here in Canada, which is productivity. What is this productivity crisis that we hear about? Yeah, these are big numbers and big targets, and it's because they're trying to get at a big problem that can. Canada has had for quite a while now. So productivity, what we mean when we talk about that is simply how much we produce, how much economic output we get per hour per person worked, right? And it's a really important number for the country because when productivity grows, in a nutshell, our standard of living goes up. We're able to produce more with less work, and that means we are more productive. We get more done. We create more goods and services

that are good for the economy. And at the same time, the value of people's work goes up because you can do more in an hour or in a day. And over time, that can help raise wages too. So Canada has had a problem with this. We have lagged behind the other major countries like the G7 countries that you would consider our peers for quite a while. And how do we see this?

Like, how do we know that we're lagging behind? Is there some sort of a measure that tells us that our productivity is not doing well? So if you want to take the government's own numbers from the most recent budget that came out on Tuesday, they say that over the last decade, productivity only grew by 0.3% annually. And that's less than a third of the pace that it grew in Canada over the previous two decades. And are we supposed to be seeing it going up all the time? Is that kind of the idea? We want consistent growth every year. And so if you look across the other G7 countries, rough average, it varies depending. on what's going on in the world might be one and a half percent. If you look at the U.S.,

which is the gold standard, they've probably grown by between one and a half and two and a half percent on average for most of the last couple of decades. And if you want to think about it this way, every year you lag, you fall a little bit behind everybody else. So if Canada in very rough numbers is producing $50 of stuff for every hour that somebody works, and the U.S. is producing 70. Every year our growth rate is slower than them, that gap gets a little bit wider. And long term, that's a big problem. Okay, okay. How does business investment factor into Canada's productivity problems? So it's a huge factor. Every time a business invest to make itself better, to buy new equipment, to find a better way of doing things, to give its employees the tools they

need to do their job properly, that's one of the biggest driving forces for how you increase productivity for how you make it grow faster. So if you want to take an example, if I run a factory that makes car parts and I invest in machinery or a tool that allows me to produce more parts an hour and makes it easier on my employees so there's less stress on them and they get injured less often, they're going to be able to do more. We're going to be able to produce more parts, sell more parts. There's going to be more supply. Everybody wins. Or to give another example for somebody more on the white color side of the industry, if you go and buy new laptops for your team because the old ones were creaky and slow and froze

all the time and couldn't run the software that they needed to do their job the best way they could. All of that is going to make people productive. And in the end, that's going to lift our economic output. And ultimately, if everything goes according to plan, our standard of living. Yeah, I'm imagining if, like, you have to restart your laptop every two hours, that is obviously making you work slower. And I also imagine that, you know, if a company is investing more money into a business. That means they have a bit of skin in the game, right? They probably want this business to keep growing. Yeah. And it's a sign of confidence, right? If you're willing to invest that way. And it's a sign that you are looking to the future. You're trying to grow. You're trying to

expand. You're trying to be more innovative. You're trying to find better ways to do things. And that's the lifeblood of any economy. All right. So it's a known issue of businesses not spending money in Canada to help their workers work more efficiently. So let's turn to the federal budget, which tried to address this issue with something called the, quote, productivity super deduction. What is that? It's a really blockbuster name, isn't it? Yes. So super.

Super. I guess one big, beautiful tax deduction was taken. Basically, the easiest way to think about it is it is a collection of tax incentives. And what they do is they allow businesses to write off the cost of investing in those new things we just talked about much faster, or in some cases, even. right away. So just to back up a second, if I buy that piece of machinery for my plant that makes car parts that we talked about before, obviously this is a low ball, but just for an easy round number, let's imagine it costs me $100 to install that piece of equipment. And I think it'll last 10 years and then it's going to be worn out and I'll have to replace it. The normal way I

would do things is I would divide up the cost, that $100 cost over those 10 years. And every year, I would claim $10 of that cost against my tax bill and I would get a benefit back. And so over time, I would get a tax break on making that investment. But it takes a long time. What these incentives in the productivity super deduction do is in most cases, they let you claim that full $100 right away, or at least for some assets that aren't specifically laid out, maybe you can claim three times as much in the first year as you otherwise would have been able to. And why that matters is it means a company gets to get that

money back from government much more quickly. That improves their cash flow. It lowers their tax bill in the short term. And that's good for them because a dollar that a company has right now is worth more to it than a dollar they think they're going to get in a few years. Okay. So the idea here, basically, is to make it more attractive to make that investment by saying it's going to pay back a lot faster. Can you explain how that works? If this lowers a company's tax bill in the short term, and it means that they have more cash flow, what guarantees that they will reinvest that money in the business to help with productivity?

Once they've invested that dollar, if that money comes back and they've got more cash flow, A, they're going to feel more profitable, so their shareholders are going to be happy and more comfortable with them making further investments. B, they might feel that they have the capacity to go make a number. other investment or to hire more workers or to spend something on their business that is going to help them further expand and grow because that's what every business ultimately wants to do. It wants to grow.

And it may even decide if it's that much more productive that it can pay its workers more. And then you get a benefit that's coming right back down to, you know, the ordinary workers in the company, they're going to consume more, they're going to spend more and feel more confident as well. So effectively, what we're trying to do here is create this virtuous cycle. Interesting. Is it fair to say that this is ultimately a tax break for companies? It is absolutely a tax break. Not so much in the sense that you actually in the long run get more money back, but as I said, it's more valuable to get it back faster and it is a break on the tax bills that companies will pay in the short term. The reason that it's not just a handout

to businesses and companies is that what the government's trying to do here is, is that what the government's trying to do here is it's trying to give its tax breaks in an area where you have to spend that dollar, make that investment to get any benefit back. And if we make enough of those productive investments and we improve our productivity and we improve our economic growth over time, that grows the economic pie and it means there's more tax revenue coming back to government when these companies pay their taxes, even though they got a break on this specific investment it up front. They're going to pay more overall over time. And that means there's more money coming into government coffers that they can then use to make more investments, to fund more social

programs, or maybe to reduce the very large deficits we're running. Okay. Yeah. Interesting. That makes sense as to why the government sees this as a benefit. But if it is a tax break, how much is it going to cost the government? So the super deduction itself, that collection of seven tax incentives is expected to cost just under $20 billion, call it $19 billion over the next five years. That's a projection because it depends on how much people invest and how much they take advantage of it. So that $19 billion is revenue it won't otherwise collect.

We'll be right back. So James, you laid out kind of the reasoning. why the government wants to do this, but how realistic is this bet? Because right now, Canada is suffering from a chill in investments due to tariffs from the U.S., and Trump recently delivered a whole suite of measures to also attract businesses with his one big, beautiful bill. So I'm wondering, will Ottawa incentives be enough to compete with the U.S.? It is very clear that this is a direct response to what the U.S. has been doing. You can talk about the One Big Beautiful Bill Act that you just mentioned that President Trump's administration put in place. It has,

for example, is one of the key pieces, upfront deductions for machinery and equipment. So exactly what we're trying to go at with the productivity super deduction here. And so there is a very real sense in which we're trying to respond to that and we're trying to be more competitive. The government's argument coming out of the budget on Tuesday was that for $1 spent on a new investment, we are now more competitive on tax than the U.S. And the way they backed that up was that they said, this is going to get a little bit wonky, a measure that we care about a lot called the marginal effective tax rate. And this is basically the actual tax that a company will pay when it makes a new investment

comes down quite a bit because of the productivity super deduction, more than two percentage points. It's now going to be 13.2%. And that's less than the U.S., which is normally. of 17%. It's less than the OECD average. It's less than any other G7 country. So the finance minister, Francois-Filippe Champagne, was out the other day saying, we can now say $1 invested in Canada is more profitable than $1 invested in the U.S. And that's true, but it's maybe not the full picture. Yeah. Okay. So that makes a lot of sense. So dollar for dollar, we ought to be

competitive with the U.S. and other countries. But is that all the businesses consider? Are there more factors. No, there are more factors. And that's the rub here, is that, yes, it helps a lot to have a competitive tax regime, and it will help make companies more confident and more willing to invest. But it doesn't offset some of the other things that have been a headache for Canada. Most recently, tariffs would be the big elephant in the room. So if we want to go back to the car parts example, if you're producing car parts and it's more attractive to, you know, build out your plant here because of those tax incentives, if you're selling a lot of, of those parts into the U.S. or you wanted to, it still doesn't help you get around the

tariff barrier that's been put up there. It's also a question of, if you're building a new project, how fast are you going to get the permits and the approvals? If you're investing in infrastructure, what's a regulatory environment going to look like? So it's not the only problem we have, the tax system, and they've gone a long way towards addressing the competitiveness problem we had. Does it solve everything in our productivity issue? I don't think so. But it's not the only measure in the budget meant to spur investment. There's also a lot of government spending around infrastructure. James, why does the government think that more money for infrastructure will get more investments in Canada?

Yeah, this is the other really big and important piece of this. So I think there's a sense that Canada has underinvested in its infrastructure. And at this moment where we are economically under so much threat and where protectionism is taking over. over in the world, there's a real sense that we need to build up our country's infrastructure, be more self-sufficient, and that's what the government really wants to do here. And one of the big planks of that, which we saw before the budget, was the launch of this major projects office based out of Calgary, which is going to try and fast-track some really big projects, the government calls them nation-building projects, and also get private investors

to come in and help support those so that we can hopefully build them more quickly and build more of them than we otherwise would have to sort of jumpstart this investment. Okay. What are some of the different ways that the government is trying to spur infrastructure development? We have the major project office for one, but are there other ways? Yeah, absolutely. So there's a crown agency that's existed for a while and I'll call the Canada Infrastructure Bank. In the budget, the government increased the envelope of money it has by $10 billion, from $35 billion to $45 billion, and also said that it will expand its mandate. Up till now, it could invest in things like public transit and green infrastructure and broadband.

Now it's going to be able to invest in any project, the major project's office brings forward, no matter what the sector is, no matter what type of asset it is. So that would open up critical minerals, pipelines, AI infrastructure like data centers. It would give it a much broader range. And there's also infrastructure money in the budget. There's $6 billion for trade-related infrastructure. that's ports and roads and digital infrastructure like we talked about. There's a billion dollars for an Arctic infrastructure fund. There's a couple of hundred million just to run the major projects office

and allow it to be able to contribute to some of these. So there's a lot of spending here. But the key is whether they can bring in a lot more. Right. Okay. Lots of millions and billions going out there. Yes. When we're talking about these private investors, who exactly are we talking about?

Is it individual companies or are we talking about big investors like pension funds? Yeah. big investors like pension funds are one of the key ones. Canada has an overabundance of large pension fund managers and the eight biggest ones collectively manage $2.5 trillion. That's trillion with a T. So that's a big pool of money. There are a lot of different sources of private capital. The key has been unlocking them and convincing them that this is the place to invest because they also have a lot of the same types of opportunities abroad. They can go to Europe. They can go to Asia. They can They can go to the Middle East. And all of those countries are competing for those same dollars, that same investment, because they want to grow their economy and their productivity and build better infrastructure for their populations just like we do. Yeah. And so is Canada an attractive place for these funds to be putting their money into?

The way I would describe it right now is they're curious, but they want to see the details. And a good way of explaining that would be the Canadian pension funds themselves. They already invest a lot in Canada, depending on. which ones you look at anywhere from 12 to 50% of their assets might be here, maybe 20 or 25% on average. They've been under a lot of pressure to invest more, but their answer to that is, this is not Canada's money, it's pensioner's money. And you have to show us that it makes sense, that there is a business case that if we make an investment here, it's better from a return and a risk perspective than making an investment somewhere abroad. And I think for a long

time, that has been a harder case to make. That's turning now, but there's still an element of wait and see here. Interesting. So that's what pension fund managers are thinking. But how have other leaders in the business community reacted to the budget? They've been well received in the sense that everybody appreciates that pivot. One of the things that I noticed right away when I cracked open the budget on Tuesday is- I just say also everyone that James has the budget with him when he's looking at it. Oh, yes, it's thick. It's well over 400 pages. It's a it's a, it's a, it's a, it's a, it's It's a good document here. When I cracked it open, I noticed the section on economy and tax measures is chapter one this year. If you go back to last year's budget on the previous

government, it was chapter four. That is a deliberate signal and that signal has been really well received by business leaders. And as we talked to CEOs and investors and other business leaders, they said, this is a step in the right direction. This points this in the right direction. There was, however, a sense that maybe it wasn't quite as ambitious, as transformational, as generational as the government had built it up to be. They had really sold this budget as something that was going to be a sea change, a once-in-a-generation budget. Yeah, let's get into that because, you know, this idea is that it. You know, you reported on the fact that some people called the measures in this budget as modest. What more did they want to see? I think on the tax side, the government

had signaled that it was going to do a wholesale review of the corporate tax regime and had made it seem like something pretty significant was coming. And I think one of the things that was potentially on the table was a broad-based corporate tax cut, just an across-the-board cut in the corporate tax rate. We didn't see that. That was not part of the budget. And I think that was a conscious choice by the government because I think they chose in the end, as I said earlier, to use measures where you don't get a tax benefit, a tax break, until you actually invest money in the country. But I still think people looked at this and said, this is a collection of new incentives, a collection of new goodies, but it's not a big picture overhaul of the tax

system. And maybe it was too soon to expect that. We'll have to wait and see. I also think they would have liked more detail about exactly how, on the infrastructure side, the government was going to speed things up and get things done. Yeah, we did an episode, a whole episode about the budget, and that's something we heard a lot about. The specifics aren't really there, and we kind of have to wait and see. How has the government responded to the criticisms from the business community? Well, Prime Minister Carney has said very directly that he disagrees with them. When people frame the budget as modest or underwhelming, he said, I just disagree with the way you framed it. He thinks it is a really big shift and a really big pivot. And it is true.

It is a different approach and a different signal to the business community, to investors, to the people who will build this country than what we have seen in the last several years under the government that preceded him. The finance minister, FOSPA, Filippe Champagne, has really tried to hammer home that sense of tax competitiveness and the fact that that is a big difference and a big deal. And I think they have also said this is the beginning of a multi-year build out of Canada that none of this will happen overnight. Even if they could attract that $500 billion of investment tomorrow, it doesn't pay back tomorrow. It takes years to build these things. It takes years for companies and workers to become more efficient and to learn how to use more tools and for us

to see the full benefit of that. So it is going to be a bit of a project here. Okay, James. So the $500 billion question is, will this work? And how and when will we know if the government's plan to get this huge amount of private investment into the Canadian economy is working. We will know if we see the things that the government has said are the big new priorities for the country are actually happening. So let's start with the infrastructure. If those major projects are getting fast-tracked, they're getting approved, they're not running into delays like we saw with Trans Mountain Pipeline, and there are shovels in the ground, and you're seeing other big investors come in and commit money to them because they believe in them, that'll be a really big

signal. If we see the amount of tax revenue that the government is losing from these tax breaks in the productivity super deduction is coming through at the levels they expected or above that, that means people are using it and it means they're investing and it means we're probably going to see the benefit on the back end. And in some way, it is a feeling. It's about confidence. If we can see that businesses believe that they can invest in this country and they'll see a return, if they believe that this is a place to build, if we see that confidence, that bullishness and we see them opening their wallets to do that and being excited about Canada, that will be a very big signal.

And maybe if I can just end on one example that I think is helpful for illustrating that virtuous cycle that the government is hoping to get us to. Stephen Polaz, the former Bank of Canada governor, wrote what I thought was a really smart analysis the morning after the budget. And he gave an example. And he said, if the government invest $10 billion, and they do it smartly such that private investors then go and invest another $40 billion, seeing that signal and seeing the path that they've created, once that investment is up and running, if everything goes as it normally does, that's going to eventually generate another $8 billion of tax revenue every year going forward. So that $10 million the government invested pays back pretty quickly in the form of new tax revenue that it brings in and then becomes a benefit every year after that. And that's the sort of flywheel they're trying to spin up.

It's the one we've had such a hard time spinning up in Canada. And that is the goal of this budget is to get that virtuous cycle happening and to keep it happening. Okay, James. Thanks so much. Thanks for having me. It's been a pleasure. was James Bradshaw, the Globe's Institutional Investing Reporter for the Report on Business. That's it for today. I'm Cheryl Sutherland. Our producers are Madeline White, Michal Stein, and Ali Graham. David Crosby edits the show. Adrian Chung is our senior producer, and Angela Pichenza is our executive editor. Thanks so much for listening and I'll talk to you soon.