Good morning, Mr. Chair and members of the committee. Thank you for the opportunity to speak here today.
I'm here, as mentioned, on behalf of Canadian Manufacturers & Exporters, our 2,500 direct members across the country, and the broader manufacturing and exporting community. Our membership network accounts for an estimated 82% of manufacturing activity across Canada, and 90% of the country's exports.
I'd like to begin my remarks by highlighting three related trends that deeply concern our organization.
First, Canadian businesses are under-investing in their operations. Canada has one of the worst records in the entire OECD when it comes to business capital spending. Non-residential investment is 13% below its 2014 peak and is at almost the same level now as it was just six years ago. In the manufacturing sector, the numbers are even worse. Capital investment intentions for 2018 are 15% below 2015 levels and 7% below 2008 levels.
The second issue is that Canada is losing out on foreign direct investment. Global investment flows into Canada have fallen by more 64% since the pre-financial-crisis period. Meanwhile, south of the border, investment has risen by 48%. On top of that, we're seeing a massive outflow of investment dollars from Canada into the United States. Four years ago, Canada had a positive investment balance with the U.S. of about $15 billion, so that's $15 billion more U.S. investment into Canada than investment going in the other direction. Since then, U.S. investment in Canada has dropped by nearly half, southbound investment has more than tripled, and we now have a net investment outflow of about $60 billion.
The third issue is that value-added exports are stagnant. According to the WTO, Canadian exports have risen by an average of about 2.5% per year since the year 2000. That represents one of the worst export performances in the entire OECD and places Canada second to last in the entire G7, ahead only of Japan. Making matters worse, most of the export growth we have seen over that period is from higher-volume crude oil shipments. Since 2000, value-added exports have grown by just 0.7% per year. That's well below the rate of inflation over that period.
These three problems—flat investment, declining FDI and stagnant exports—are all the results of our uncompetitive business environment. Business costs in Canada are high, labour supply is tight, the tax and regulatory burden in increasing, and we have too many small companies and not enough large ones.
In our formal submission to this committee, we put forward a number of recommendations to address these issues. With the time I have remaining, I'd like to highlight a few of them.
First, we need to improve our tax competitiveness. Canada needs to match the current capital cost allowance provisions in the United States, which give U.S. businesses an immediate 100% tax writeoff on qualifying capital asset purchases. Longer term, we need fundamental tax reform. Canada's business tax system needs to be simplified and structured in a way that rewards companies for growing—unlike the current system, which rewards them for being and staying small.
Second, we need to reinvest all carbon tax revenues collected from manufacturers back into the sector. A recent study by Canadians for Clean Prosperity has made headlines by saying that if carbon tax revenues were used to finance annual dividend payments most Canadian households would be better off than if there were no carbon tax at all. This only works because those dividends are financed through an implicit wealth transfer from businesses to households. Penalizing businesses for polluting but rewarding households for the same activity makes no sense. Carbon tax revenues collected from manufacturers need to be recycled into programs that increase investment in emission-reducing machinery, equipment and technologies—dollar for dollar.
Third, we need to improve our export market penetration. Among our recommendations, we ask the government to improve awareness and funding of existing government-support programs and make them more business-friendly, to introduce a national manufacturing export accelerator program to help prepare SMEs for new markets, to address company-specific export barriers, and to adjust the corporate tax structure so that companies pay a lower rate of tax on profits generated from exports.
Finally, labour and skill shortages continue to plague the sector. In a recent CME survey, about 70% of respondents said they face labour and skill shortages today, and almost three-quarters expect such shortages to arise within the next five years. We are already working with the federal government to improve female representation in manufacturing, and this is a solid first step. Other measures that would help include enhanced work-integrated learning programs that better link post-secondary institutions to the private sector, and steps to expand and improve the Canada job grant.
In closing, let me say that we need to act quickly and with urgency to improve business competitiveness in Canada. If we don't, we risk being left even further behind our global competitors.
Thanks for your time. I look forward to any questions you might have.