Shaking Canada’s Economic Foundations
Canada faces an incredibly challenging backdrop. Adjusted for population, the economy has barely grown over the past decade. Canada had the second-weakest GDP per capita growth out of 38 OECD countries over 2014-24 (Figure 1). The OECD projects that Canada will achieve the weakest per capita economic growth of any advanced country over 2020-30 and 2030-60 (Williams, 2021). For many people, the strain on living standards has been acute. Monthly visits to Canadian food banks reached 2.1 million in March 2024, the highest in history, and up 90% from 2019 (Food Banks Canada, Table 1).
Figure 1
Table 1
Canada’s public sector has expanded while private sector economic activity has stagnated or declined (Figure 2). Per person government spending has grown by 11% since 2014, roughly twice the rate of per person household spending (6%). Meanwhile, again using per person figures, exports have shrunk by 2%, and capital investment in businesses and residential structures has fallen by 22% and 11%, respectively since 2014. Because ultimately the private sector generates the income growth and tax base to fund the public sector, Canada’s growth model over the past decade is unsustainable and incompatible with rising living standards.
Figure 2
At the provincial level, B.C.’s GDP per capita growth over the past five years has been well below its historical average but better than most other provinces (Figure 3). B.C.’s relative outperformance reflects the lift from several once-in-a-generation mega capital projects – Trans Mountain, Site C, LNG Canada, and Coastal Gas Link – along with very high levels of government spending and public sector hiring. In contrast, private sector investment and hiring has stagnated. There are just under 1.9 million private sector employees in B.C., almost the same number as in 2019, whereas there has been vigorous growth in public sector jobs from around 460,000 to around 600,000 today (Figure 4).
Figure 3
Figure 4
B.C. has also seen a rapid deterioration in its public finances since 2021/22 (Figure 5). As recently as July 2021, B.C. had one of the best fiscal positions of any province with a long track record of balanced budgets or small operating deficits, the lowest debt load in the country, and a top-tier credit rating. Today, B.C. is running the largest deficit in its history, the largest deficit in the country relative to the size of its economy, has seen debt levels surge faster than any other comparable jurisdiction, and received repeated credit rating downgrades. Credit downgrades raise the cost of issuing government debt to cover the operating deficit and capital plan.
Figure 5
Compounding our home-grown challenges, U.S. President Trump’s tariff policies are a seismic shock to global trade. They represent an existential threat to Canada’s industrial base given the prospect that companies may respond by relocating industrial capacity from Canada to the U.S. Existing operations here may be starved for new capital investment or new hiring. Some may ultimately be wound down. Very high policy uncertainty further undermines the case for business investment in Canada (Figure 6).
Figure 6
There is an urgent need to implement structural policies with a view to restoring Canada and B.C. as attractive places to base and build businesses relative to the U.S. BCBC recently released a ten-point policy blueprint, supported by an in-depth report, outlining what we think should be the province’s fiscal, tax and regulatory priorities. Put simply, if parts of our industrial base downsize or relocate to the U.S., British Columbians will have to accept a lower standard of living.