June 25, 2014 – Canadian provinces have parted ways when it comes to their share of public- versus private-sector investment, according to a new C.D. Howe Institute report. In “The Public Purse versus Private Wallets: Comparing Provincial Approaches to Investing in Economic Growth,” author Philip Cross, former Chief Economic Analyst at Statistics Canada and C.D. Howe Institute Research Fellow, exposes what is driving investment in each province: business or government.
After having relatively similar ratios of private to public investment in the late 1990s, Canada’s provinces are increasingly falling into one of two groups. The first group has seen a marked shift towards public investment since 2000. Public investment grew to almost equal the amount of private investment in Nova Scotia, Prince Edward Island, New Brunswick and Quebec. In Ontario and Manitoba, public investment is over half of the level of private investment.
“Provinces should be concerned about falling business investment versus public spending,” notes Cross. “Periods of robust business investment almost always are periods of strong economic growth,” he says. “Private-sector investment is usually a strong indicator of future business spending and a willingness to hire more employees.”
The other group, where business investment is soaring, includes Alberta, Saskatchewan and Newfoundland. Here, private-sector investment has more than doubled relative to public-sector investment in recent years, and private-sector investment represents between 10 and 26 percent of GDP in these provinces.
“In addition to being a key driver of economic growth, private-sector investment also embodies technological innovation, which is essential to Canada’s competitiveness,” remarks Cross.
For governments concerned about stimulating economic growth while addressing deficits, the potential for writing cheques to pay for rising public-sector investment has limits. Provinces that have seen a decline in private-sector investment should look for new ways to boost it.
The C. D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada’s trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada’s most influential think tank.