Treasury
TD Comments on Government Policy Shifts to Help Spur Investment, Growth in Canada
Prime Minister Mark Carney has emphasized that the federal government's ambition is to get Canada "back" to building "big things," said TD.To achieve this, the government is using three levers, the bank noted. The most prominent is the Major Projects Office, which was initially established to deliver government decisions on designated projects within two years. However, the government recently went further, launching a 30-day consultation on regulatory and legislative changes to shorten project review and decision timelines to one year, and to create "federal economic zones" for development, coordinate consultation with Indigenous communities, and other proposed changes.Streamlining regulatory requirements to speed infrastructure development could prove transformational, but is only likely to deliver its main economic benefits over the medium-term, stated TD.With the impact of U.S. tariffs still being felt, the government has deployed two more immediate measures to get investment dollars out, writes the bank in a note. The first is to raise spending on defense and public infrastructure.On defense, billions are allocated to base and cyber infrastructure and the development of a domestic defense industrial strategy, although some equipment will be imported, dampening the impact on Canada's economy. For public infrastructure more broadly, billions are allocated over the next five years for things ranging from hospitals to transportation infrastructure.An increasing number of firms in the Bank of Canada's Business Outlook Survey (BOS) reported that the initiatives were "supporting their sales outlooks".Changes on the tax front have been smaller, added TD. The expansion of the Scientific Research & Development credits, and a rebranded and expanded eligibility for immediate expensing of capital investments (Productivity Super-Deduction) were announced in Budget 2025 with the goal of lowering the marginal tax rate for new investments.The government is looking to lay the groundwork for long-term growth, and new policies may struggle to lift investment in the here-and-now as outlays languish from the effects of the trade war.This leaves the bank expecting that business investment will register "meagre" growth in 2026 after last year's contraction. However, in a sign that things may have started to turn a corner, the BOS showed a notable improvement in investment intentions before the war in the Middle East.Even more encouraging was that the share of respondents prioritizing productivity-enhancing investments continued to trend higher, according to the bank. Coupled with the adoption of artificial intelligence, increased outlays on productivity-enhancing capital could begin to help reverse Canada's multi-year productivity malaise, which is crucial for the country to find success amidst the changing policy and economic environment.
$CXY