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Federal government helped spark Canada’s economic growth crisis

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Federal government helped spark Canada’s economic growth crisis

Prime Minister Trudeau continues to defend his government’s economic record despite new evidence Canada is in an outright economic growth crisis. Nothing short of a U-turn in policy from the federal and many provincial governments will reverse the crisis.

According to new data from Statistics Canada, the Canadian economy (adjusted for inflation) grew by 0.2 per cent in the final quarter of 2023 after contracting the previous quarter. However, these data examine the economy as a whole rather than on a per-person basis. This is important because Canada has experienced explosive population growth. Again, according to StatsCan, Canada’s population growth in the third quarter of last year was the highest on record since 1957 and population growth for just the first nine months of 2023 exceeded any full year since Confederation.

To maintain living standards, the economy must grow at a rate equal to population growth. The surge in Canada’s population, which now stands at more than 40 million, has masked serious stagnation in the living standards of Canadians.

Consider data for 2015 to the end of 2023. Per-person GDP (inflation-adjusted), a broad measure of living standards, was $58,162 at the beginning of 2015 and didn’t reach this level again until the beginning of 2017. In other words, for two years Canadian living standards stagnated.

Despite some growth in per-person GDP—albeit just 2.6 per cent between the beginning of 2017 and the second quarter of 2019—living standards started to decline again. In the second quarter of 2019, per-person GDP (inflation-adjusted) reached $59,905.

This is important for two reasons. One, the decline in per-person GDP started well before the pandemic in early 2020. And two, this new peak in per-person GDP was only 3.0 per cent higher than the peak reached in 2014. In plain language, the average living standard for Canadians only improved by roughly $1,700 between the end of 2014 and the beginning of 2019.

Unfortunately, the country’s record in improving the well-being and living standards of Canadians has actually gotten worse since then.

According to the new StatsCan data, per-person GDP (inflation-adjusted) in the fourth quarter of 2023 was slightly lower than it at the end of 2014—$58,111 vs. $58,162, which means that over the last nine years, Canadian living standards have not increased. Indeed, in 16 of the 36 quarters between the start of 2015 and the end of 2023, per-person GDP (inflation-adjusted) declined. That’s almost half the entire period recording declines in Canadian living standards.

And the level of per-person GDP at the end of 2023 is much lower ($2,066) than the peak reached in the second quarter of 2022 before the current decline started—$58,111 vs. $60,178. Of the six quarters since the second quarter of 2022, five saw declines in per-person GDP (again, meaning reductions in Canadian living standards).

This dismal record on living standards stands in stark contrast to previous experience when a different set of policies dominated Canada from coast-to-coast. Under what we’ve coined the Chrétien Consensus, after the former prime minister, Canadians enjoyed sustained and material increases in living standards. That period was generally characterized by restrained growth in government spending, prioritized spending, balanced budgets and debt reduction, tax relief, and a focus on creating the right conditions for entrepreneurs and businesses to flourish rather than taking an active role in economic development.

There’s some subjectivity to when the period started and ended, since several premiers including Roy Romanow (NDP) of Saskatchewan, Ralph Klein (Conservative) of Alberta and Mike Harris (Conservative) of Ontario had already implemented reforms prior to the historic reforms of the Chrétien government in 1995. But if we date the period from when the Chrétien government tabled its federal budget in 1995 to when the Trudeau government was elected in 2015, it covers 21 years. Over that period, per-person GDP (inflation-adjusted) grew by 33.0 per cent, from $43,212 in 1995 to $57,491 by the end of 2015.

The policies of that era, which spanned the country and included political parties of all stripes, served Canadians exceedingly well. The rejection of those policies by some provincial governments and the Trudeau government have resulted in a decline in living standards and what should be characterized as a genuine economic growth crisis. Canadians would be well served if the federal and provincial governments recognized the current crisis and returned to the successful policies of this era—namely balanced budgets, better control and prioritization of spending, genuine tax relief and creating the right conditions for entrepreneurs and businesses to thrive rather than trying to pick winners and losers in the economy.

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