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The Bay Street financial district with the Canadian flag in Toronto on Aug. 5, 2022.Nathan Denette/The Canadian Press

Thirty years ago, Canada could be rightly thought of as one of the more prosperous countries in the world. Canadians were not quite as rich as Americans, but we had many other advantages – and were better off than pretty much everyone else.

That’s the past. The present and future look to be a great deal less pleasant: Canada is not just losing ground relative to other countries but there is an increasing likelihood of an outright decline in living standards.

According to recent data and forecasts in a report from the C.D. Howe Institute, Canada’s relative prosperity is in steep decline, with this country’s gross domestic product per capita falling well below the average for the advanced economies that make up the Organization for Economic Co-operation and Development.

In 1993, Canada’s real GDP per capita was 106 per cent of the OECD average. The C.D. Howe Institute forecasts that in 2024 Canada will be just 89 per cent of the average of advanced economies. Canada has also fallen compared with the United States: In 2023, this country’s GDP per capita is forecast to be less than three-quarters that of the U.S. (Those statistics are relatively generous to Canada, since the institute has adjusted them for domestic purchasing power.)

Like so many of the big issues vexing Canada, the prosperity problem is long-standing, but has gathered speed in recent years, accelerating since the Liberals took power in 2015. It would not be fair to lay the problem entirely at the feet of the Trudeau government. The failure to dismantle interprovincial trade barriers is shared by all prime ministers, for instance. But the Liberals have governed while Canada’s real GDP per capita has flatlined, and their policy choices are making the problem worse.

The housing market is just the most prominent example. There are many factors that have led to a massive housing shortage and surge in prices, but Ottawa’s failure to act aggressively to curtail the market – and in some instances to add fuel to the fire in the form of subsidies – is a key part.

Household debt is bigger than the Canadian economy, with mortgages accounting for three-quarters of that total. That’s not just a burden on homeowners – the need to fund those mortgages diverts capital from loans to, say, entrepreneurs that might be riskier but could boost Canada’s economic performance.

Conversely, the prosperity problem makes stratospheric housing prices even more of a hardship. Mortgage costs would eat up a smaller share of household income if the economy were growing as fast as the OECD average. One crisis bleeds into another.

There’s a similar story to tell with immigration. The Liberals’ determination to increase immigration levels, particularly temporary migrants, does help to increase the size of Canada’s economy.

But the pace of economic growth is not keeping up with the pace of population expansion, exerting downward pressure on average living standards. As with housing, the prosperity problem intensifies the challenges of higher immigration. A richer Canada would be better able to afford to build the infrastructure needed to accommodate newcomers. One crisis feeds on the other.

The problem is complex, and there will be no simple solutions.

Spurring greater capital spending is key, including tilting the tax code in such a way to encourage investment in productive assets, perhaps through broader and more aggressive amortization rules. Tearing down barriers to competition both internal and at Canada’s borders are part of the equation, as well. Of course, smarter housing policy aimed at sustained supply increases will help, as would an immigration policy focused on boosting incomes rather than importing cheap labour.

Those ideas, and more, have been on offer for years. What has been missing is a government that sees building a high-wage economy as its core mission, and bends every policy to that end. The Liberals have been fond of saying that their government aims to help the middle class, and those working hard to join it.

Eight years on, the prosperity problem is even more urgent, and in need of a government that focuses relentlessly on the entrepreneurial class – and helping those working hard to join it.

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