Investment Multipliers

Budget 2025 introduced $41.3 billion in new federal measures to support investment activity across five program areas: infrastructure, private research and development, housing, industrial development programs, and tax measures.

The Standing Senate Committee on National Finance requested an assessment of the economic rates of return on these measures by investment type and under different scenarios.

This note responds to that request by estimating investment multipliers using PBO's macroeconomic model. Each multiplier measures the net impact on real GDP of a permanent, inflation-adjusted one-dollar increase in the relevant investment category, accounting for behavioural responses including monetary policy, import leakages, and capital accumulation. Multipliers are estimated under two scenarios: one in which monetary policy responds to higher investment activity, and one in which it does not.

Infrastructure and private research and development generate the largest and most sustained returns, growing over the five-year horizon as investment accumulates into productive capacity. Housing generates strong short-run returns, with additional benefits possible beyond those captured in the model, such as labour mobility effects. Industrial development programs produce the lowest multipliers, reflecting the high import content of machinery and equipment. Tax measures generate modest returns in the short run that grow substantially over five years as capital accumulates and productivity rises.