Kudos to Bank of Canada Governor Mark Carney for blowing the whistle on the $500 billion-plus that Canadian corporations are holding in excess cash surpluses and refusing to invest.
His speech to the CAW last week wasn’t the first time he’d raised the issue. Last year at the Empire Club he urged assembled business leaders to invest their surpluses. After cutting corporate tax rates, finance ministers Jim Flaherty and Dwight Duncan also voiced their frustration with Canadian business for investing too little in the economy.
It’s important to recognize that this half a trillion didn’t just fall from the sky into corporate coffers, but was the result of slow wage growth, high profits, corporate tax cuts, rising house prices and slow rates of business capital investment
The flip side of the growth of unprecedented corporate surpluses and the resulting growing cash hoards is record rates of household indebtedness – a major threat to our economy.
Our finance ministers have used tax cuts, low interest rates, wage suppression, deregulation, etc, etc, ostensibly to get corporations to invest more of their profits and surpluses in the economy, without effect. Now they (and Carney) are using moral suasion, but that’s unlikely to work either.
Turning over excess cash to shareholders, as Carney urged companies to do if they won’t invest it in machinery and equipment, wouldn’t help much either. While pension funds might benefit, much of that money would go to the wealthiest in society and would only lead to less economic stimulus (as they’re less likely to spend).
And if the wealthy get extra money, where do they invest it? Back in companies that aren’t investing in the economy in speculative financial investments or in real estate, blowing up that bubble even more.
There’s a simple, straightforward solution. If corporations won’t invest despite all that’s been done for them, governments should tax those surpluses back through various means and use the revenue to increase public investment in the economy and expanded services – both of which would go a long way toward improving the precarious state of household finances.
Toby Sanger is a research associate with the Canadian Centre for Policy Alternatives.
