Canada has potential for investment ‘super cycle’ with certain policy changes: TD report

If Canada takes certain steps, including increasing the competitiveness of its tax and regulatory systems, scaling high-growth companies and ensuring access to skilled labour, it could unlock an “investment super cycle,” a Wednesday report from TD Economics said.

The cautiously optimistic analysis comes as the country finds itself in a prolonged trade war with the U.S., which has escalated just before Prime Minister Mark Carney’s Canada Investment Summit, set to attract the world’s largest money managers to Toronto on Sept. 14 and 15. Yet the report outlines “the art of the possible in Canadian investment” if government policy falls into place, TD Bank Group deputy chief economist Derek Burleton said in an interview.

The report estimates that more than $1-trillion could be spent on approved or on-the-table projects over the next 10 years and beyond. “We know there’s no silver bullet,” Mr. Burleton said, but the combination of Canada’s richness in natural resources, global structural changes such as the push for defence dollars and government risk-taking creates a “hallmark of a super cycle.”

Of that $1-trillion in long-term spending on more than 300 publicly announced projects, energy was the largest sector, accounting for 34 per cent. This factors in proposals for Alberta’s Peace River nuclear power project and the West Coast oil pipeline, neither of which has been approved yet.

Defence was the second-largest sector at 27 per cent of total potential spending, which included plans to modernize the North American Aerospace Defence Command (NORAD). After 2035, the report’s modelling put defence as the sector with the greatest investment potential.

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Assuming governments can successfully clear the hurdles necessary to execute the projects they are backing themselves, Mr. Burleton said, international investor confidence could follow and yield a “flywheel effect.”

“If governments can create that private ecosystem over time, then not only can we take advantage of the projects that are currently being bandied about, but we can see other projects step forward.”

In a “high investment scenario” projection, TD identified the potential for more than $1.5-trillion in spending to materialize in the long term.

On the conditions needed to unleash these dollars, the report critiqued Canada’s corporate and personal tax systems as barriers to growth. As Canada competes for top entrepreneurial talent, the analysis pointed out that its personal tax rates are higher and apply at lower income thresholds compared with other G7 countries.

On the corporate side, the report argued Canada’s tax credit phase-outs and Canadian-controlled private corporation rules incentivize small businesses to stay small or engage in excessive tax planning, rather than growing.

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The government has “got to not only move on the policy landscape to improve the investment environment, but [it] needs to do so without raising the deficit and the debt. So, this is obviously a critical element here, and a big challenge,” Mr. Burleton said.

The report also pushed streamlining project approval times and reducing red tape, goals largely in line with the federal government’s approach on the matter. In this endeavour, Mr. Carney’s government has encountered some snags, including needing to hit pause on legislation that would speed up environmental assessments, after backlash.

TD noted the scaling challenges companies in Canada face. When looked at in a pool with the U.S., the EU and Israel, Canada’s share of high-growth companies (those that raised more than $1-million) has fallen from 4.7 per cent in 2016 to 1.5 per cent in 2024. Access to skilled labour is a binding constraint for the growth of these companies, the report said.

Although TD acknowledged Canada’s reliance on foreign investors, Mr. Burleton suggested a potential shift in focus away from U.S. capital, especially in the wake of the trade war, at the coming investors’ summit.

“A lot of the focus needs to be on a global audience, not just the U.S.,” he said.