Ontario and Quebec have fallen behind western Canada when it comes to creating and maintaining a positive investment climate, according to a new report from the Fraser Institute.

In the latest annual look at the provincial investment climate, the conservative think tank says Ontario fell to fourth place (it had ranked first or second between 1998 and 2004). Ontario was surpassed by Alberta, British Columbia and Saskatchewan. Quebec languishes in ninth, ahead of only Prince Edward Island.

The Fraser Institute says that its Provincial Investment Climate Index objectively evaluates the public policies that create and sustain a positive investment climate. The index is composed of seven components: corporate income tax, fiscal prudence, personal income tax, transportation infrastructure, corporate capital tax, labour market regulation, and burden of regulation. It ranks each province on a scale of one to 10.

Alberta earned the highest score, 8.9 out of 10, and was clearly Canada’s top province for policies that encourage and sustain a positive investment climate. BC followed in a distant second position with a score of 6.0 out of 10. Saskatchewan is third with a score of 5.3 out of 10. The three western provinces were the only ones with an overall score above 5.0.

Ontario was fourth overall with a score of 5.0 while Quebec, with a score of 3.0, was ninth.

“The low scores for Quebec and Ontario are among the most worrying aspects of this year’s report. These two provinces are extremely important to the Canadian economy, yet they have chosen to implement policies that are not conducive to attracting investment,” says Jason Clemens, co-author of the study and director of fiscal studies at the Fraser Institute.

“On the other hand, three governments of different political orientation in the western provinces have all reduced the tax burden and implemented incentive-based tax relief and are now reaping the benefits of enhanced economic success.”

“When seven out of 10 provinces, including manufacturing centres such as Ontario and Quebec, are perceived as unattractive regions for investment, the message is clear that more needs to be done to ensure the vitality of Canada’s economy,” Clemens concludes.