Canada should provide additional supports for businesses facing the costs of digitizing operations due to the pandemic, says a new report from the C.D. Howe Institute.
The report from the Crisis Working Group on Business Continuity and Trade also emphasized a need to reduce barriers to interprovincial trade and mobility, accelerate private sector capital spending, and clarify confusion around Canada’s foreign investment regime.
The group of industry experts and economists, co-chaired by Dwight Duncan, Senior Strategic Advisor at McMillan LLP and former Ontario Minister of Finance; and Jeanette Patell, Vice-President of Government Affairs and Policy for GE Canada, held its final meetings on June 16 and July 14, 2020. In the near term, the working group noted the rapid pickup in economic activity as provinces have eased restrictions. However, it highlighted continuing uncertainties around the COVID-19 pandemic – especially the impact of a second wave – and the potential for recovery to stall after the current bounce.
The group noted the vulnerability of small businesses during the recovery period, as they adapt to the need for physical distancing, and pressures to rapidly digitize operations. To support small business, the group recommended governments streamline relief programs, invest in safe reopening capacity, and support adoption of digital tools by small businesses – particularly to enable international reach. Working group members urged governments to design small business supports for digital investments using tax credits or by leveraging private capital.
With Canada facing a potentially prolonged period of depressed demand, economy-wide, working group members considered several measures to accelerate capital spending in the private sector. Some working group members observed that arrangements through the Large Employer Emergency Financing Facility or similar channels could be structured to encourage companies to accelerate planned capital spending.
The group further noted the COVID pandemic amplifies the need for overdue reforms to enhance labour mobility between provinces. Facing a volatile and uncertain international setting, Canada must facilitate economic activity at home. Reducing the challenges for skilled workers moving across provinces – for example, by automatically recognizing a trade certification from another province – can boost overall output significantly.
To fund the turnaround of distressed Canadian assets, companies must have access to capital from foreign sources. The group argues protracted approval processes and stringent conditions on foreign acquisitions of Canadian assets risk hindering Canadian access to foreign capital at a critical time. Given a recent government statement that implies enhanced scrutiny of “opportunistic investment behaviour” by foreign acquirers, working group members recommend that the federal government clarify its openness to foreign investment and approach to reviews under the Investment Canada Act (ICA). In particular, the government’s recent statement on the ICA leaves unclear its definition or criteria for what “critical sectors” will be subject to enhanced reviews.
