Amanda Lang speaks with the CEO of TMX Group

Key Concepts

• Fiscal Update: The Canadian government’s periodic report on budget projections, deficits, and economic policy.
• Foreign Direct Investment (FDI): Investment from foreign entities into Canadian businesses or infrastructure.
• Capital Markets: The financial systems where companies raise money (e.g., TMX Group/Toronto Stock Exchange).
• Investment Certainty: The predictability of regulatory, tax, and legal environments required for long-term capital deployment.
• Tax Reform: Structural changes to the tax system to improve economic competitiveness and simplicity.
• Entrepreneurial Pipeline: The process of creating, scaling, and retaining new businesses within Canada.

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1. Fiscal Update: Key Figures and Initiatives

The federal government’s recent fiscal update provided several updates on the state of the economy:

• Deficit Reduction: The deficit for the year ending in March is now projected at $67 billion, an improvement of $11.5 billion from previous fall projections.
• Canada Strong Fund: A new $25 billion investment fund aimed at encouraging Canadian investment.
• Skilled Trades: The "Team Canada Strong" initiative aims to support the creation of 100,000 new skilled trade workers by 2030.
• Affordability Measures:
  • Grocery benefit increased by 25% for five years starting in July.
  • CPP (Canada Pension Plan) contributions to decrease from 9.9% to 9.5% starting in January.
• Indigenous Support: $4.3 billion allocated for Indigenous communities.
• Foreign Investment: Canada reached a 20-year high in FDI at $97 billion, leading the G7.

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2. Perspectives on Capital Flow and Investment

John McKenzie, CEO of TMX Group, provided a critical analysis of the current investment climate:

• The "Built vs. Bought" Problem: While FDI is at a record high, much of it involves foreign entities buying existing Canadian businesses rather than building new infrastructure or companies.
• Energy Sector Decline: Despite global interest in energy, the Canadian energy market has seen a significant decline in public capital raising. The number of listed energy companies on Canadian exchanges has dropped from 400 to under 200, with financing for new growth near zero.
• The "Alarm Bell" Statistic: In the last decade, the percentage of Canadian-led companies raising $1 million or more that choose to do so in Canada has plummeted from 70% to 32%. Many entrepreneurs are now building their businesses in the U.S. from day one due to better access to capital, lower taxes, and faster regulatory approval.

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3. Barriers to Investment and Regulatory Challenges

McKenzie identified two primary factors that drive investment: Return and Risk.

• Regulatory Hurdles: While the government established a "Major Projects Office," McKenzie argues it treats the symptom rather than the cause. Investors require certainty over long time horizons (years, not months). Policies like the Impact Assessment Act and various sector-specific bans create uncertainty that drives capital to more predictable jurisdictions.
• Positive Steps: The government successfully amended R&D programs to allow small companies on public exchanges to access support without losing their R&D credits—a change that took 10 years of advocacy to achieve.

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4. Tax Reform and Structural Recommendations

McKenzie advocates for a non-partisan, long-term approach to tax reform:

• Royal Commission on Tax: He suggests a commission similar to those held 60 years ago to elevate tax policy above daily political discourse.
• Simplification: The goal should be to eliminate "inefficient" boutique tax credits and regional agencies in favor of a simpler, more attractive system.
• Funding Reform: Given the current deficit, any major tax reform (such as changes to capital gains) must be paired with a strategy to fund the transition, acknowledging that large deficits often signal future tax increases to investors.

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5. Notable Quotes

• On the loss of Canadian companies: "I never like losing a Canadian company... because when we lose a Canadian company, not only do you lose the kind of control over it, but over time... talent migrates out of the country, IP migrates out of the country, the tax base migrates out of the country." — John McKenzie, CEO of TMX Group.
• On the need for structural change: "If you don't believe you can navigate through the impact assessment act... it doesn't matter if there's a major project office in place; the investment dollars are going to flow somewhere else." — John McKenzie.

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6. Synthesis and Conclusion

The fiscal update presents a mixed picture for Canada. While the government has successfully attracted record levels of foreign capital and implemented targeted affordability measures, there is a structural disconnect in the economy. The primary challenge is not just attracting foreign money, but fostering an environment where Canadian entrepreneurs can build, scale, and retain their companies domestically. To reverse the trend of businesses fleeing to the U.S., the government must move beyond treating symptoms and address the fundamental issues of regulatory uncertainty, tax complexity, and the need for a long-term, non-partisan strategy for economic growth.