On the eve of a federal budget, Canadian executives say the economic outlook is strong enough that Ottawa shouldn't make paying down the deficit its top priority - instead it should look for ways to reinforce the recovery by putting money into training, infrastructure and R&D.
According to the latest C-Suite survey of corporate executives, strategic investments in education and training should be the first choice if the government wants to keep the momentum of recovery moving.
"Investments in the future are going to generate positive economic results," said Peter Luit, chief executive officer of Toronto-based customs broker Livingston International Inc. "[That might mean]delaying paying immediate funds down on the deficit, but certainly it's going to build a stronger economy so that we'll have a lesser deficit in the end."
Almost three in five executives said investing in education and training should have a high priority in the budget, while 52 per cent said investing in research and development is key. Transportation and infrastructure were a top priority for 42 per cent of those who responded, while attacking the deficit came in fourth place - a high priority for 39 per cent of executives.
Executives in Ontario - where growth has been sluggish - were keener to see more government spending on transport and infrastructure, while those in the West see deficit trimming through spending cuts as a higher priority.
The survey, conducted for Report on Business and Business News Network by Toronto research firm Gandalf Group, also reveals the greatest level of optimism about the Canadian economy in a year. Fully 96 per cent of executives expect strong or moderate growth in the next year. And 97 per cent expect their own company to grow in the next 12 months.
Hopes for the U.S. economy have also recovered strongly, with more than 81 per cent expecting strong or moderate growth south of the border in the next year.
Still, some executives report that the recovery has not fully taken hold, and that's why Ottawa needs to take measures that will keep the economy moving in the right direction.
"We see positive signs, but what we don't see yet is sustained momentum," said Michael Pyle, CEO of Exchange Income Corp., a Winnipeg company that owns manufacturing operations and several regional airlines. "We'll see two or three really good weeks … and then it sputters down and revs up again … I don't think [the economy]has both of its legs under it yet."
The earthquake, tsunami and nuclear disaster in Japan have underlined how easily - and unpredictably - the world's economy could be hit by further shocks, he said. Indeed, many executives surveyed said they have concerns about issues ranging from the fragility of the U.S. economy to rising energy prices to high levels of household debt.
Mr. Pyle said his No. 1 priority for the federal budget is stability and predictability - which means the government must follow through with its promise to cut the corporate tax rate further. More than 80 per cent of the executives surveyed agreed the tax cuts must go ahead.
"In the long term we want to be as competitive as we possibly can in Canada," Mr. Pyle said. "People who say that tax rates don't affect business decisions are either being disingenuous or incredibly naive."
When it comes to the deficit, he said, it is important to get it shrinking, "but I'm not sure that means it has to be zero."
The softening concern over the deficit is reflected in the declining proportion of executives who feel a tax increase will be needed to get rid of it. A year ago, almost 60 per cent of those surveyed said some form of tax boost would be necessary to eliminate the federal deficit. Now, that number has fallen to about 30 per cent.
Indeed, said Mark Montemurro, CEO of Calgary energy-from-waste company Alter NRG Corp., Ottawa should be considering some new tax stimulus programs to ensure Canada remains competitive.
Mr. Montemurro said a simple, yet effective means of stimulating growth that would help bolster the economy is to extend flow-through tax credits to companies that conduct significant research and development.
Flow-through credits, which currently give investors a tax break for resource exploration, have been very valuable for oil and gas and mining companies, he said, and they could help get new technological developments to market if extended to R&D in other industries.
With the enormous advances being made in developing countries, particularly in Asia, Canada needs to do everything possible to boost innovation and get new ideas from the laboratory to commercialization, Mr. Montemurro said. That will help boost the tax base, create jobs, and in turn help Canada's overall financial picture in both the short and long term, he said.
The quarterly C-Suite survey was conducted for Report on Business and Business News Network by the Gandalf Group and sponsored by KPMG.
The survey interviewed 152 executives between Feb. 10 and Feb. 24, 2011. Respondents represent ROB 1,000 companies from across Canada in the manufacturing, service and resource sectors. The margin of error is 7.3 per cent, 19 times out of 20.
Each quarter, a $1,000 charitable contribution is made on behalf of a survey participant. For the December survey, a donation will be made on behalf of Howard Crone, executive vice-president and chief operating officer of Cequence Energy Ltd., to a charity of his choice.