The federal government and Santa Claus have several features in common. For starters, neither one of them seems to have to worry about meeting a budget.
Given that, and their propensity for handing out gifts, maybe this is a good time to ask a seasonally appropriate question: If Ottawa really were Santa, what should Canadians ask it to deliver for Christmas?
A couple of possibilities leap to mind.
One welcome (and remarkably cheap) gift would be a commitment on government’s part to put Canada’s productivity woes at the centre of every new federal budget.
Our dismal performance on productivity is the country’s great but largely unacknowledged problem. Instead of talking about it, Ottawa prefers to deliver happy chatter about how fast the economy has grown in recent years.
Its rhetoric misses the point. Any government can expand its economy by expanding the number of people in it. However, throwing open the doors to immigrants, foreign students and temporary workers – as Ottawa has been doing willy-nilly for several years – doesn’t mean the average Canadian is living any better.
To put that a bit more technically, you can boost the size of the total economic pie – gross domestic product (GDP) in the jargon – simply by letting more people into the country. But if you want the good stuff – more prosperity, better salaries, a higher standard of living – you can’t just grow the pie. You need to increase how much pie there is per person.
Expanding the amount of pie per person means growing how much each individual produces on average. This, of course, is precisely what economists mean by productivity.
Changes in productivity are better measured by GDP per capita than just GDP but, until recently, we rarely heard politicians or anyone else talk about GDP per capita.
Ottawa’s numbers game
The federal government likes to focus on the growth of gross domestic product (GDP). However, what really matters for boosting prosperity isn't how much the economy produces in total, but how much GDP per person there is. The news there is dismal: While immigration has boosted GDP, Canada's GDP per capita is actually shrinking. Remarkably, it is now back to where it was six years ago.
Canadian GDP per capita
(chained 2012 $, thousands)
Canadian GDP
(chained 2012 $, trillions)
2.4
62
2.3
60
GDP per capita, 2023 Q3 (Right scale)
2.2
58
2.1
56
2.0
54
1.9
52
1.8
50
1.7
1.6
48
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
the globe and mail, source: Royal Bank of Canada
Global Asset Management
Ottawa’s numbers game
The federal government likes to focus on the growth of gross domestic product (GDP). However, what really matters for boosting prosperity isn't how much the economy produces in total, but how much GDP per person there is. The news there is dismal: While immigration has boosted GDP, Canada's GDP per capita is actually shrinking. Remarkably, it is now back to where it was six years ago.
Canadian GDP per capita
(chained 2012 $, thousands)
Canadian GDP
(chained 2012 $, trillions)
2.4
62
2.3
60
GDP per capita, 2023 Q3 (Right scale)
2.2
58
2.1
56
2.0
54
1.9
52
1.8
50
1.7
1.6
48
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
the globe and mail, source: Royal Bank of Canada
Global Asset Management
Ottawa’s numbers game
The federal government likes to focus on the growth of gross domestic product (GDP). However, what really matters for boosting prosperity isn't how much the economy produces in total, but how much GDP per person there is. The news there is dismal: While immigration has boosted GDP, Canada's GDP per capita is actually shrinking. Remarkably, it is now back to where it was six years ago.
Canadian GDP per capita
(chained 2012 $, thousands)
Canadian GDP
(chained 2012 $, trillions)
2.4
62
2.3
60
GDP per capita, 2023 Q3 (Right scale)
2.2
58
2.1
56
2.0
54
1.9
52
1.8
50
1.7
1.6
48
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
the globe and mail, source: Royal Bank of Canada Global Asset Management
Maybe that was to be expected. Nobody likes to dwell on their failures and Canada has been a long-term flop at boosting GDP per capita. It has been underperforming for decades, under both Liberal and Conservative governments.
Between 2000 and 2022, Canada’s growth in GDP per capita lagged far behind that of the United States. We also trailed Germany and Australia – two very different economies that nevertheless found their own ways to outpace us. Even Britain, with its steaming mess of shambolic politics and Brexit self-harm, managed to do better than we did.
If anything, Canada’s plight is growing worse. Our real GDP per capita is now declining. Remarkably, it is now back to where it stood six years ago.
“That’s a pretty startling observation,” Eric Lascelles, chief economist at RBC Global Asset Management, noted recently. “Productivity growth is normally ticking higher every year outside of a recession, and that has not been the case. We’ve been losing ground over the last year or two.”
There is no magical answer to the country’s productivity woes. As Claude Lavoie, a former director-general of policy analysis at the Department of Finance, wrote this week, any solution involves Ottawa taking on powerful vested interests, including farmers and small-business owners. No politician is itching for those fights.
But that is precisely why it is important for Ottawa to make GDP-per-capita growth a highly visible marker of success. Only by focusing on a hard target, and setting goals for it, year after year, can the government hope to make much progress.
While it’s addressing the country’s massive productivity challenge, Ottawa might want to put another gift under the Christmas tree: some common sense on immigration.
The Liberals’ decision to supersize immigration quotas after 2015, and open the door to foreign students and temporary workers, has placed enormous stress on the country’s housing market. To make homes affordable again, Canada would have to double or more its pace of housing starts, according to calculations by Canada Mortgage and Housing Corp.
There is no sign of that happening. So cries are growing for Ottawa to reverse course by cutting its immigration ambitions, restricting the intake of foreign students and finding other ways to reduce the number of people entering the country.
That makes a certain amount of rough sense. However, it’s politically awkward and also puts all the stress on only one side of the problem. The real issue here is the mismatch between the government’s overwhelming desire to boost immigration and Canada’s lacklustre ability to build homes.
If we could suddenly clear away all the impediments to housing construction – from restrictive zoning regulations to lack of skilled tradespeople – the economy would be able to accommodate many more newcomers without driving home prices and rents further into the stratosphere.
So Ottawa’s second gift should be to build a clear and obvious link between these two issues. It should announce that it will make immigration quotas dependent on the number of new homes being built.
This would make the logic of the issue clear, both to voters and politicians: Anyone who wants to sustain today’s sky-high levels of immigration would first have to find ways to dramatically increase housing starts.
Doing things this way would constitute a dramatic reversal of Ottawa’s recent course, which has been to first boost immigration and then hope against all evidence that housing starts will somehow follow.
A change of course in this area, as well as a new emphasis on growing GDP per capita, would make excellent Christmas gifts for Canada. Think about it, Ottawa.
Ian McGugan