There's not much the Fraser Institute and Finance Minister Charles Sousa see eye to eye on when it comes to the economy.

But in a report Monday, the right-leaning Vancouver think tank hits on something Sousa has been harping on since he took over the key cabinet post 14 months ago: How to get companies to invest more and create jobs.

The Fraser report says Ontario businesses saw their share of business investment fall to 31 per cent of the national average in 2012, from 40 per cent in 1990. And, since the Liberals took power in 2003, Ontario's average annual growth of investment in buildings, machinery and equipment was 3 per cent, compared with 5.3 per cent for the rest of Canada.

That means Ontario companies are not building enough plants, adopting new technology or making other capital expansions that create jobs.

A lot of that is related to the restructuring of the North American auto sector, the decline in manufacturing, the state of Ontario's branch-plant industrial structure and how the high dollar in recent years has squeezed exports to the American market.

Despite the causes, the think tank report warns that lagging business investment could do lasting harm to the economy if it's not reversed.

"This decline in productive investment suggests that in the future there will be growing economic productivity problems," warns Lakehead University economist Livio Di Matteo, who co-authored the report.

Sousa has been noting for months that companies are sitting on piles of cash but they're not reinvesting it. That's why the minority Liberals have been touting partnerships with business, using grants and other subsidies to leverage bigger corporate spending in advanced manufacturing, food processing, IT and other sectors.

Sousa's budget, expected May 1 or the following week is expected to contain a $2.5 billion jobs and prosperity fund to support job creation in the economy and get Corporate Ontario investing again.

In his 2013 economic update last November, Sousa challenged companies to invest more and noted provincial companies lagged the U.S. and the rest of Canada in business investment as a share of GDP.

"Strong business investment matters critically for labour productivity growth, both because it increases the amount of capital per worker but more importantly because it brings new technology to the workplace," the economic statement said. "New technologies spur innovation, efficiency gains, higher output and increased competitiveness."

The coming budget is expected to contain a number of moves to encourage more business investment. The province wants to take the lead with its own assets, with a plan to tally capital investments at Crown companies, such as Ontario Power Generation, Hydro One, the LCBO and Ontario Lottery and Gaming Corp.

Sousa's officials have also been studying replacing existing research and development tax credits with incentives to reward companies who do more R and D. Most U.S. states provide similar measures to reward incremental research spending.

The Finance Ministry has also been examining so-called "Pay or Play" tax incentives for business.

These include a special business tax that could be eliminated or reduced if a company invests in equipment, or a payroll tax that could be cut or wiped out if business puts its money into training programs.

Quebec, France and many U.S. states have such a system to encourage training.

In its study, Can Canada Prosper without a Prosperous Ontario?, the Fraser Institute said the province's weak economy is hurting the rest of Canada.

"Ontario's poor record on GDP growth, employment and business investment reflects a damaged provincial economy that's dragging down the national economy," said Di Matteo, a senior fellow at the think tank.

Di Matteo recommends the government improve tax and regulatory competitiveness, boost its capital investment, reform energy and industrial policies, and develop forestry and mineral resources.

Many of these policies are part of the minority Liberals plan to boost transit and infrastructure spending in a budget that could contain up to $5.7 billion in new spending.

Sousa has unlikely ally in bid for more business invesment

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