Thank you, Chair, and members of the committee.
I am pleased to be here on behalf of Canadian Manufacturers and Exporters, one of the oldest and largest trade associations in Canada, representing thousands of manufacturers from coast to coast.
Manufacturing is the backbone of Canada's economy, employing 1.8 million Canadians, generating over $200 billion in real GDP and driving two-thirds of Canada's value-added exports, yet weak productivity growth continues to hold our sector back. Canada's labour productivity lags nearly 30% behind the U.S., and business investment per worker has dropped to half of U.S. levels. This gap leaves our economy exposed.
For Canadian companies, workers and families, the best defence against tariffs, protectionism and other external shocks is a strong and productive domestic manufacturing base.
Not all productivity gains are created equal. Manufacturing matters more. Manufacturing is unique because it drives innovation, investment and skills development across the entire economy. When manufacturers invest in new equipment or processes, the benefits spill over into other sectors. When they adopt advanced technologies, those innovations diffuse outward, and because manufacturing is both capital intensive and trade exposed, productivity improvements in this sector translate directly into higher wages, stronger exports and more resilient supply chains.
Before I get into some solutions, I want to stress that productivity isn't just something we as a trade association talk about. It is what we do every day. CME works directly with manufacturers across Canada to provide practical lean training and continuous improvement programs to help them cut waste, boost efficiency and stay competitive. That shop floor commitment to productivity is also what drives the productivity reforms we're here to talk abut today.
I'd like to highlight three opportunities to improve manufacturing productivity and competitiveness. The first is tax policy. Canada's overall tax burden on business investment is too high, and the system is too complex. Manufacturers tell us that predictability and simplicity matter just as much as rates. If the system is difficult to navigate, investment flows elsewhere.
The competitiveness of Canada's corporate tax system is difficult to measure precisely, but one reality is clear. Recent U.S. tax reforms, notably through the One Big Beautiful Bill Act, have made Canada relatively less attractive for new manufacturing investment. That bill strongly incentivizes domestic investment in U.S. production through a series of tax changes. The biggest benefits are immediate expensing of short-lived assets, 100% deduction for a production plant, more favourable R and D incentives and a more favourable international tax regime. Our close attention to U.S. trade policy is obviously warranted, but we cannot ignore the effect of their tax reforms as well.
The second area I'd like to identify is around trade and transportation infrastructure investment. Canada's productivity, and frankly, our resilience, hinge on having efficient transportation networks. Investments in trade-enabling infrastructure have the virtue of making all of its users—our members, Canadian manufacturers—more productive. Canada needs more targeted public and private investments to build new trade-enabling infrastructure and to maximize the efficiency of the infrastructure that already exists.
Third, I'd like to flag regulatory burden. This is where we see some of the biggest and the lowest-cost opportunities to boost productivity. Manufacturers, especially small and medium-sized ones, consistently cite regulatory burden as a top barrier to growth. They face a system that is fragmented, duplicative and unpredictable. Every advanced economy wrestles with regulatory drag to some extent. Bold action on this front could differentiate ourselves from competitors and could attract investment that we are losing out on today.
The flaw with past federal red tape reduction efforts is that they targeted isolated irritants instead of undertaking the systemic reforms needed to improve regulatory outcomes across all decision-making. It's like pumping air into a leaky tire: It might help you in the short term, but the underlying problem goes unsolved.
CME's “Regulate Better, Grow Faster” report lays out a road map, and I would quickly highlight a few key recommendations from it before I wrap up.
The first is that we think the federal government should legislate competitiveness and growth mandates for all federal regulators. Regulators should be required to give appropriate consideration to the potential impact of their activities on economic growth, not as an afterthought, but as a statutory obligation.
Second, we believe the federal government should expand the scope of the current one-for-one rule. Despite the rule, government-imposed requirements on businesses continue to increase because the law itself has some carve-outs in it. It also excludes legislated obligations, ministerial guidance and other non-regulatory requirements that are imposed on businesses. We think these gaps must be closed to truly contain the proliferation of red tape.
Third, we think there is an opportunity to strengthen the oversight of the cost-benefit analysis process that underpins all new regulations. Regulators can and do play with the numbers as part of these analyses to present overly optimistic analyses that justify new rules. To fix this, Canada should create an independent body, modelled after the U.K.'s Regulatory Policy Committee, to publicly grade the quality of regulatory impact assessments. A similar body in Canada would ensure that all cost-benefit analyses are credible, realistic and transparent.
These and some other systemic reforms would fundamentally change and improve how we regulate, providing significant long-term benefits to our manufacturing sector and the broader economy.
Chair and members, Canada's productivity crisis is real and urgent, and we hope that your work today and over the proceeding meetings will help spark the bold action that is required. It is only through achieving higher productivity that Canada's manufacturers can compete globally, while offering their workers better jobs and rising, real wages.
Thank you. I look forward to your questions.