Canada is one of the richest countries in the world, but compared to comparable countries such as Australia, New Zealand and the UK, it is not as rich as it once was.
Figures released by the Organisation for Economic Cooperation and Development (OECD) show that the wealth gap between Canada and the United States is only widening.
Canada’s relatively weak economic growth, combined with its growing population, has led to a decline in its standing among wealthy countries.
That’s one reason why Prime Minister Justin Trudeau has turned to Mark Carney, the former governor of the Bank of Canada, to advise him and his cabinet on how to spur economic growth.
Finance Commission Chairperson Anita Anand has also set up a “task force” to look into the country’s sluggish productivity and find ways to boost economic output.
The Bank of Canada is also wrestling with the issue: In March, Deputy Governor Carolyn Rogers sounded the alarm about the need for Canada to boost productivity.
“You’ve seen those signs that say, ‘In case of emergency, break glass.’ Now it’s time to break the glass,” she said. speech.
The latest data from Statistics Canada shows why: Canada’s economy is growing overall, but at a disappointing rate relative to its population growth rate.
country An increase of approximately 1.3 million people Last year it grew 3.2%, but the economy is only 1.1 percent Over the same period. That means more people are getting a share of an economic pie that’s not getting any bigger.
The news isn’t all bad: Data shows that real weekly wages (take-home pay) are actually increasing in Canada, even after accounting for inflation. Household savings rates are also on the rise.
And we may see improvement in the future. Canada’s economic growth is It will reach 1.3% in 2024 In the late 1990s, inflation rose to 2.4 percent and to 2.4 percent the following year, according to data from the International Monetary Fund.
A country’s wealth can be measured by dividing the size of its economy by the number of people living in it. In economics, this is known as “GDP per capita” and is a key indicator of living standards.
Gross domestic product (GDP) is the total value of goods produced and services provided in a country during a given year. On a per capita basis, GDP fell 0.1% in the second quarter of this year. Five consecutive quarters of declineAccording to Statistics Canada.
‘We are collectively getting poorer’: former Bank of Canada deputy governor
Paul Baudry served as Deputy Governor of the Bank of Canada from 2019 to 2023 and is currently a professor in the Vancouver School of Economics at the University of British Columbia.
“Compared to other countries, we are poorer overall,” Beaudry told CBC News, “and not just compared to the U.S., but compared to many other countries. We’re in the lagging group.”
Higher GDP per capita means more wealth to distribute, which means governments can collect more revenue from a growing economy without necessarily raising taxes.
“If GDP per capita increased, we would be richer and we would have more public services, more health care, more education – all the things we want more of. But we are falling behind,” Beaudry said.
America has been richer than Canada for a long time.
In 2002, Canada’s GDP per capita was about 80% of that of the United States, but much of the country’s wealth is concentrated It falls into the hands of a relatively small number of people.
But by 2022, Canada’s GDP per capita will be just 72% of its southern neighbor’s, giving the United States an even larger advantage over Canada when it comes to living standards.
“The gap between the United States and Japan is not just large right now; it is widening at a pace not seen in generations,” said Trevor Tombe, an economics professor at the University of Calgary.
Migration to the U.S. could begin to accelerate because Canada isn’t keeping up, said Larry Schembri, a senior fellow at the Fraser Institute and a former deputy governor of the Bank of Canada.
“As that gap widens, more and more Canadians are motivated to move to the U.S. in search of better economic opportunities and a higher standard of living,” he said, adding that doctors and tech workers are likely to be the first to move.
But Canada isn’t just falling further behind the United States, which has been saddled with huge budget deficits that have underpinned its impressive economic growth.
For the past 20 years, Canada’s GDP per capita has exceeded the OECD average of the world’s 30 most advanced countries.
“We don’t want to become another Argentina.”
In 2002, Canada’s GDP per capita was 8.6 percent higher than the OECD average, a point of pride that meant Canada was outperforming other developed countries.
But that all changed in 2022, as Canada’s GDP per capita fell below average, according to OECD data. Editor Schembri and the Fraser Institute.
Canada’s per capita income was US$46,035, slightly below the 2022 OECD average of US$46,266.
“I don’t want to see a future where Canada falls behind other countries and gets poorer and poorer over time,” Beaudry said.
“We don’t want to become another Argentina,” he said, referring to a once-rich country that now has a middling economy after decades of misgovernance. “That’s why we have to be concerned about this issue.”
Notably, Canada lags behind comparable countries such as Australia, New Zealand and the UK.
In 2002, Canada and Australia were equally wealthy; today Canada’s federal member states are wealthier.
Canada’s GDP per capita was roughly the same as Australia’s in 2002, but fell to 96.6% of Australia’s in 2014 and to 91.2% by 2022.
Canada’s GDP per capita is higher than New Zealand’s, but the Commonwealth nation is closing the gap, as is the UK, despite the economic shocks of Brexit and other turmoil.
The Canadian economy is showing many of the hallmarks of a recession — rising unemployment, bankruptcies and falling consumer spending — yet it continues to grow. Andrew Chan explains the divergence and what’s behind it.
Tombe said the disparity between Canada and other developed countries outside the United States is of particular concern.
“This isn’t just a uniquely American success story, it’s a story of the Canadian economy lagging behind where we want it to be,” he told CBC in an interview. Power and politics.
GDP figures ‘slightly misleading’: former PM adviser
Tyler Meredith is a former adviser to Trudeau who helped shape the government’s fiscal and economic policy.
Meredith told CBC News that the drop in GDP per capita is heavily distorted by the rapid population growth in recent years and is “misleading in some ways.”
He said his previous Liberal government had “allowed too many temporary foreign workers into the country.”
“We need to reduce temporary immigration, we need to reduce foreign students and probably reduce low-skilled foreign workers,” he said.
But he pointed to data showing take-home pay is rising, even when inflation is taken into account, and household savings rates are rising as rising wages encourage more people to save.
“Those two things are directly related to the question, ‘Do I have enough income to live the lifestyle I want and buy the things I need?'” he said. “I’m not convinced people care about GDP per capita.”
Meredith said Canadians remain well off despite “weak” economic growth and rising unemployment.
Meredith acknowledged that U.S. economic growth has been “phenomenal and outpaces the rest of the world,” but said Canada’s slowdown has been “a little more severe than other countries.”
How can Canada turn things around?
Beaudry said there’s no single, conclusive reason that could explain why Canada has fallen behind.
He said Canada’s lax immigration policies post-COVID are a drag on collective prosperity.
Beaudry said Canada is “heavily burdened” with new immigrants and it will be difficult to integrate so many people into the economy in such a short time, especially low-wage, low-skilled workers.
According to a recent financial report from the Bank of Canada, the unemployment rate among immigrants is around 12%, which is much higher than the overall unemployment rate.
Beaudry said that if Canada curbed the number of new immigrants, it would improve its GDP per capita figures in the short term, but it wouldn’t necessarily address other factors that have contributed to Canada’s decline over the past two decades.
Beaudry said Canada has a weak enterprise culture, competition is virtually nonexistent in some key sectors and big companies spend less on technology and improving worker skills – two things that can boost productivity and national wealth.
Schembri said Canada also suffers from long-standing inter-provincial trade barriers – regulatory red tape that provincial premiers talk a lot about but do little to remedy.
Schembri said the federal government needs to focus on growth rather than redistributing existing wealth, and tax incentives to keep highly skilled workers in Canada would also help.
Tombe added that recent federal government measures to increase capital gains tax rates could lead to individuals and businesses investing less than they currently do.
“We’re seeing an increase in effective tax rates on investment in Canada. We’re going in the opposite direction from where we should be,” he said.
The government argues that raising taxes disproportionately on the wealthy and corporations is the best way to fund new social programs such as dental and pharmaceutical benefits, as well as ambitious housing plans.
Meredith said the government needs to encourage Canadian companies to spend more and find ways to free up some of the “dead money” that’s sitting on balance sheets but not being spent.
Tombe said Canada’s longstanding practice of initiating royal commissions to address seemingly unsolvable problems could be part of the solution in this case.
“It might be helpful to shine a bright light on all the areas where Canada can improve,” he said.
