This was published in the Globe and Mail on Nov. 26, 2025

Mark Carney’s economic agenda seeks to promote private investment by building infrastructure and providing more support to business – at least according to his speeches and the most recent budget. This approach echoes Stephen Harper’s 2006 strategy and differs markedly from Justin Trudeau’s vision of building a more inclusive and greener economy through investments in social and environmental programs.

Neither the Harper nor Trudeau agendas proved particularly successful. Business investment performance did not improve after 2006, and while poverty declined after 2015, income inequality and other measures of equality, such as the gender gap, have not improved significantly – though more time may be needed to assess the full impact.

A lack of success often stems from misdiagnosis of the problem, excessive political consideration or incorrect assumptions, and there is evidence Mr. Carney’s plan may suffer from these shortcomings as well.

The government appears to believe that a lack of public infrastructure is a significant impediment to private investment and economic growth. While changes in the geopolitical situation and trade patterns may require a certain amount of new infrastructure, it’s important to remember that every government since the early 2000s has poured money into infrastructure. The net stock of infrastructure grew much faster than GDP, with the ratio of infrastructure stock to GDP rising from about 25 per cent in 2007 to almost 45 per cent at the end of last year.

The marginal return on new infrastructure spending should be expected to be lower than in the early 2010s, and its economic impact smaller than estimated in the budget (which uses a multiplier as large as three in some cases) – at least for some of the projects listed, such as athletic parks and community centres. Some federal public investment may also simply displace private or provincial investment, with limited net impact on the economy.

The government seems to think that a lack of financing is another key impediment to private-sector investment. The budget provided billions of dollars in additional money to the Business Development Bank of Canada, Export Development Canada and some yet-to-be-created funds to address perceived funding gaps. The government has also eased legislation to increase financial institutions’ lending capacity.

Yet it’s not clear whether a lack of financing is really an important investment barrier. More than 90 per cent of financing requests made by small and medium-sized enterprises were approved in 2023 (the most recent year for which data are available). Canada ranks high in the OECD in absolute (and in per capita) venture capital investments by national funds, despite having a smaller economy. Moreover, public financing of private projects that had difficulty getting private financing may expose taxpayers’ money to excessive risk.

The much smaller amount of money provided to enhance the government’s in-kind assistance to business, such as for CanExport or the new Strategic Export Office, will likely be more effective.

Allowing companies to write off capital depreciation at an accelerated pace is a more effective approach to spurring investment than reducing the corporate income tax rate.

At the same time, Canada’s corporate tax burden was not likely the reason for our poor investment performance. Our relative investment performance remained lacklustre throughout the 2010s despite Canada having one of the lowest marginal effective tax rates on business investment in the G7. The Trudeau government’s reduction of the small business corporate tax rate did not yield much of an investment boost either. This is consistent with empirical evidence showing that corporate taxes have only a marginal impact on economic growth.

Business subsidies have been proven to be largely ineffective in raising Canadians’ real incomes, yet they have increased by almost 150 per cent over the past decade. It is unlikely that the additional subsidies doled out by Mr. Carney’s government, such as those for the Strategic Innovation Fund, will be successful.

The Carney government’s economic agenda is a move in the right direction given the global context. Yet it may have overestimated what it can achieve because of some faulty assumptions. This overly optimistic strategy is problematic, as it may fuel cynicism and further damage public trust in government.

To mitigate this problem in the future, the government needs a civil service with stronger analytical capacity to evaluate what works and what doesn’t – and the ability to challenge the government. A strong public service was a key ingredient in the success of the Chrétien government agenda.

But past public-service reforms have gradually hollowed out its internal thinking function, leaving the current civil service in a state of capability crisis. Let’s hope the upcoming government program review will not only be an exercise in fiscal restraint but an exercise in rebuilding the public service’s capacity.