The term "catalyze" has rapidly ascended from a niche economic descriptor to the defining buzzword of the Canadian federal government’s rhetorical arsenal. According to records from Open Parliament, the use of the word saw a nearly five-fold increase between 2024 and 2025, signaling a profound shift in the legislative focus of the administration led by Prime Minister Mark Carney. For a government tasked with resuscitating a moribund economy, "catalyzing" investment has become the shorthand for a dual-track strategy: activating stagnant public funds while simultaneously attempting to unleash private sector "animal spirits." However, as the government enters its second year of this economic pivot, questions are mounting as to whether these rhetorical shifts can overcome the structural inertia that has plagued Canadian productivity for decades.
The Carney government’s approach is rooted in the belief that Canada’s productive capacity is currently throttled by three main factors: a tax system that allegedly blunts financial rewards, a thicket of regulatory "red tape" that hinders interprovincial commerce, and a public sector that has historically been too risk-averse to co-invest with private entities. To address these, the administration has introduced a suite of reforms, including the Productivity Super-Deduction and enhancements to the Scientific Research and Experimental Development (SR&ED) tax credits. Yet, a growing body of evidence suggests that the narrative driving these reforms—that high taxes and regulation are the primary barriers to investment—may not align with the empirical reality of the Canadian corporate landscape.
A Chronology of Economic Stagnation and Policy Response
To understand the urgency of the Carney government’s "catalyst" agenda, one must look at the timeline of Canada’s productivity challenges. For nearly thirty years, Canada has trailed its G7 peers, particularly the United States, in productivity growth. By the early 2020s, the gap had widened into what the Bank of Canada described as a "national emergency."
In 2023 and 2024, the previous administration laid the groundwork for green investment through the Clean Economy tax credits. These were intended to incentivize carbon capture, utilization, and storage (CCUS), hydrogen development, and clean manufacturing. When the Carney government took office, it doubled down on these measures, viewing them as the primary engine for a "Net Zero" industrial revolution. However, by July 2025, a report from the Auditor General of Canada revealed a staggering lack of progress: uptake for these specific credits remained at near-zero levels.
The Spring Economic Update of 2026 marked a subtle but significant shift in tone. While the "catalyze" rhetoric remained, the government began to introduce the concept of "Driving Productivity and Affordability Through Competition." This signaled an admission that tax incentives alone were insufficient to move the needle on capital expenditures. The government’s trajectory shifted from merely subsidizing investment to exploring how the fundamental structure of the Canadian market might be inhibiting growth.
The Profit-Investment Paradox
Central to the debate over the Carney government’s strategy is the "Profit-Investment Paradox." The traditional economic model suggests that when corporate profits rise, firms reinvest those earnings into capital projects, technology, and labor to further increase efficiency. However, Canadian data from 2020 to 2025 tells a different story.
During this period, Canadian private sector profits reached record highs, yet capital expenditures remained largely stagnant. Analysis of sectoral data reveals an even more confusing trend. In sectors where profits were relatively flat following the pandemic—such as mining, utilities, and transportation—there was actually a measurable increase in capital expenditures. Conversely, in sectors with soaring profits, such as finance and real estate, investment in productivity-enhancing technology did not keep pace.
This suggests that the link between profitability and investment is broken. If firms are "awash in cash" but refuse to invest, further tax cuts or "super-deductions" may do little more than pad the bottom line of shareholders. Critics argue that Budget 2025’s Productivity Super-Deduction might only accelerate the timing of investments that were already planned, rather than "catalyzing" new activity that wouldn’t have otherwise occurred.
Lessons from the International Stage: The 2017 US Tax Reform
The Carney government’s reliance on tax incentives as a primary lever for growth invites comparisons to the United States’ Tax Cuts and Jobs Act (TCJA) of 2017. The Trump-era policy represented the most significant overhaul of the US corporate tax system in a generation, slashing the federal rate from 35% to 21% and introducing immediate expensing for capital investments.
Proponents of the TCJA promised a surge in domestic investment and a permanent boost to GDP. However, a 2023 retrospective analysis by the non-partisan think tank American Compass found that the promised investment boom never materialized. While the tax cuts added more than $1 trillion to the US national deficit, the impact on investment-driven growth was statistically negligible. Most of the corporate windfall was directed toward stock buybacks and dividends rather than R&D or new equipment. For Canadian policymakers, the TCJA serves as a cautionary tale: providing more capital to the corporate sector does not guarantee that the capital will be used productively.
Competition: The Missing Link in the Productivity Chain
If profits and tax incentives are not the primary drivers of investment, the focus must shift to the environment in which firms operate. Economists such as Philippe Aghion have long argued that competition is the true engine of productivity. In a competitive market, firms are forced to innovate and invest not because they want to, but because they must survive.
In Canada, many key sectors are dominated by long-standing oligopolies. The banking sector is perhaps the most prominent example. For decades, the "Big Six" banks have enjoyed a protected market, leading to high fees for consumers and a perceived lack of innovation in financial technology. While the Trudeau government began the process of "Open Banking," the Carney government has been tasked with the difficult work of implementation.
The challenge is significant. Incumbent firms have a vested interest in maintaining the status quo and have proven adept at "throwing sand in the gears" of regulatory modernization. The delay in updating Canada’s payments system—the "plumbing" of the financial sector—is a prime example of how incumbents can stall competition-enhancing reforms. To truly "catalyze" the economy, the government may need to move beyond "cutting red tape" and instead use regulation as a tool to break open these "walled gardens."
The Labor Market and the "High-Wage" Incentive
A less discussed but equally critical component of the productivity puzzle is the role of labor competition. For years, Canada has marketed itself to global firms as a source of high-quality, low-wage labor. While this has successfully attracted branch offices of multinational corporations, it may have inadvertently stifled productivity.
When labor is cheap and plentiful, firms have little incentive to invest in automation or labor-augmenting technology. Why spend millions on a new robotic system when you can simply hire more workers at a low wage? This dynamic has been exacerbated by the Temporary Foreign Worker (TFW) program, which critics argue has allowed businesses in certain sectors to avoid raising wages or investing in efficiency.
The Carney government faces a paradoxical challenge: to drive productivity, it may need to encourage higher wages. A tighter labor market, where firms must compete fiercely for workers, creates a natural incentive for capital investment. As wages rise, the "business case" for technology that increases output per worker becomes much stronger. This "high-wage, high-productivity" model runs counter to decades of Canadian economic policy, but it may be the only way to break out of the current slump.
Broader Impact and the Path Forward
The success or failure of the Carney government’s economic agenda will likely determine Canada’s standard of living for the next generation. If the "catalyst" strategy remains focused on tax incentives and subsidies for a corporate sector that is already highly profitable, the country risks a continuation of the "secular productivity slump"—a long-term period of low growth and stagnating real wages.
However, if the government embraces a more "imaginative" approach to competition, the results could be transformative. This would involve:
- Aggressive Antitrust Enforcement: Empowering the Competition Bureau to not only review mergers but to actively dismantle barriers to entry in protected sectors.
- Interprovincial Trade Liberalization: Eliminating the internal trade barriers that make it harder for a business in Alberta to sell to a customer in Ontario than to one in Texas.
- Strategic Labor Policy: Reforming immigration and labor programs to ensure that firms are competing for workers on the basis of productivity and wages rather than relying on a steady supply of low-cost labor.
The Carney government finds itself at a crossroads. The rhetoric of "catalyzing" the economy is a start, but rhetoric cannot replace the hard work of structural reform. To unleash the "animal spirits" of the Canadian economy, the government must be willing to upset the very corporate interests that have thrived under the status quo. Only by fostering a truly rivalrous process—where firms must innovate to survive and workers are valued as a scarce resource—can Canada hope to reclaim its position as a global leader in productivity and innovation.
