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Growing the government won’t help Canada’s economy

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From the Fraser Institute

By Jake Fuss and Grady Munro and Alex Whalen

Empirical research suggests that economic growth is maximized when the size of government falls between 24 and 32 per cent of GDP. In other words, when governments spend in excess of this range, the economy will not grow as much as it would if government operated within that threshold

Canada is suffering from an economic growth crisis, and governments across the country should reassess their policies. Governments (particularly the federal government) have recently taken a more active role in the economy through increased spending and bureaucracy. However, policymakers must take a step back and recognize that growing government doesn’t lead to growth in the economy.

Canada’s economy has been stagnant for the last decade. From 2013 to 2022, per-person GDP (a broad measure of living standards) grew at its slowest pace since the 1930s, after accounting for inflation. And more recent data shows that in the fourth quarter of 2023, per-person GDP (inflation-adjusted) stood at $58,111—which is $51 per person lower than it was at the end of 2014. Simply put, Canadians have experienced a decade of dismal growth, and are now actually worse off than they were a decade ago.

During this time, many governments in Canada have adopted an approach of greater involvement in the economy and significantly higher spending. Take the federal government, for example.

Since 2014/15, the government has increased annual program spending (total spending minus debt interest) by roughly 75 per cent, from $256.3 billion to $448.2 billion in 2022/23. Moreover, the Trudeau government has recorded the five-highest years of federal spending in Canadian history, after accounting for population growth and inflation. Much of this spending has gone towards expanding  Ottawa’s role in the economy through increased transfers, business subsidies or new programs such as $10-a-day daycare and national dental care.

Provincial governments in QuebecNova Scotia and British Columbia (to name a few) have also recently reached historical highs in per-person program spending (even after excluding COVID-related spending). Simply put, governments across the country have been increasing spending and becoming more involved in the economy.

One way to measure the size of government, that allows for the comparison of jurisdictions over time, is known as total consolidated government spending as a share of GDP. This measure includes all spending at the local, provincial and federal levels in a jurisdiction and compares that level to the size of the economy.

According to a recent study, in 2022 (the latest year of available data) the size of government in Canada was 40.5 per cent of GDP compared to 38.2 per cent in 2014.

Among the provinces, total government spending ranged from 26.8 per cent of GDP in Alberta to 63.0 per cent of GDP in Nova Scotia. Compared to 2014, the size of government grew in eight of 10 provinces—only Prince Edward Island and B.C. experienced declines in government spending as a share of the economy. It’s also important to note that this is simply government spending. The true size of government, when accounting for things like regulation, is even larger.

Growing government matters because it influences economic growth. When the size of government is below a certain level, it lacks the resources to deliver services such as policing, courts or national defence—which are essential to a functioning economy. On the other hand, when government is too big it engages in activities best left to the free market and effectively crowds-out private-sector activity that contributes to economic growth. Therefore, when a government is too small or too big, economic growth (and consequently living standards) suffer.

Empirical research suggests that economic growth is maximized when the size of government falls between 24 and 32 per cent of GDP. In other words, when governments spend in excess of this range, the economy will not grow as much as it would if government operated within that threshold—all else equal. Based on the numbers presented above, it’s clear the vast majority of governments in Canada are too big. For nine of 10 provinces and the federal government, their spending exceeded 32 per cent of GDP in 2022.

As Canadians look for solutions to address a stagnating economy and falling living standards, governments should recognize that taking a more active role in the economy won’t solve the problem—and will likely make it worse.

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Trump considers $5K bonus for moms to increase birthrate

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President Trump voiced support Tuesday for a $5,000 cash bonus for new mothers, as his administration weighs policies to counter the country’s declining birthrate. The idea is part of a broader push to promote family growth and revive the American family structure.

Key Details:

  • Trump said a reported “baby bonus” plan “sounds like a good idea to me” during an Oval Office interview.
  • Proposals under consideration include a $5,000 birth bonus, prioritizing Fulbright scholarships for parents, and fertility education programs.
  • U.S. birthrates hit a 44-year low in 2023, with fewer than 3.6 million babies born.

Diving Deeper:

President Donald Trump signaled his support Tuesday for offering financial incentives to new mothers, including a potential $5,000 cash bonus for each child born, as part of an effort to reverse America’s falling birthrate. “Sounds like a good idea to me,” Trump told The New York Post in response to reports his administration is exploring such measures.

The discussions highlight growing concern among Trump administration officials and allies about the long-term implications of declining fertility and family formation in the United States. According to the report, administration aides have been consulting with pro-family advocates and policy experts to brainstorm solutions aimed at encouraging larger families.

Among the proposals: a $5,000 direct payment to new mothers, allocating 30% of all Fulbright scholarships to married applicants or those with children, and launching federally supported fertility education programs for women. One such program would educate women on their ovulation cycles to help them better understand their reproductive health and increase their chances of conceiving.

The concern stems from sharp demographic shifts. The number of babies born in the U.S. fell to just under 3.6 million in 2023—down 76,000 from 2022 and the lowest figure since 1979. The average American family now has fewer than two children, a dramatic drop from the once-common “2.5 children” norm.

Though the birthrate briefly rose from 2021 to 2022, that bump appears to have been temporary. Additionally, the age of motherhood is trending older, with fewer teens and young women having children, while more women in their 30s and 40s are giving birth.

White House Press Secretary Karoline Leavitt underscored the administration’s commitment to families, saying, “The President wants America to be a country where all children can safely grow up and achieve the American dream.” Leavitt, herself a mother, added, “I am proud to work for a president who is taking significant action to leave a better country for the next generation.”

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Trump: China’s tariffs to “come down substantially” after negotiations with Xi

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President Trump said the 145% tariff rate on Chinese imports will drop significantly once a deal is struck with Chinese President Xi Jinping, expressing confidence that a new agreement is on the horizon.

Key Details:

  • Trump said the current 145% tariff rate on China “won’t be anywhere near that high” after negotiations.
  • He pointed to his relationship with Xi Jinping as a reason for optimism.
  • The White House said it is preparing the groundwork for a deal, and Treasury officials expect a “de-escalation” of the trade war.

Diving Deeper:

President Donald Trump on Tuesday told reporters that the steep tariff rate currently imposed on Chinese imports will come down substantially after his administration finalizes a new trade deal with Chinese President Xi Jinping. While the current level stands at 145%, Trump made clear that number was temporary and would be adjusted following talks with Beijing.

“145 percent is very high. It won’t be that high, it’s not going to be that high … it won’t be anywhere near that high,” Trump said from the Oval Office, signaling a shift once a bilateral agreement is reached. “It will come down substantially, but it won’t be zero.”

The tariff, which Trump previously described as “reciprocal,” was maintained on China even after he delayed similar penalties on other trading partners. Those were cut to 10% and paused for 90 days to allow room for further negotiation.

“We’re going to be very nice. They’re going to be very nice, and we’ll see what happens. But ultimately, they have to make a deal because otherwise they’re not going to be able to deal in the United States,” Trump said, reinforcing his view that the U.S. holds the leverage.

Trump’s remarks come as markets remain wary of ongoing trade tensions, though the White House signaled progress, saying it is “setting the stage for a deal with China.” The president cited his personal rapport with Xi Jinping as a key factor in his confidence that an agreement can be reached.

“China was taking us for a ride, and it’s not going to happen,” Trump said. “They would make billions a year off us and build up their military with our money. That’s over. But we’ll still be good to China, and I think we’ll work together.”

Treasury Secretary Scott Bessent also said Tuesday that he expects a cooling of trade hostilities between the two nations, according to several reports from a private meeting with investors.

As the 90-day pause on other reciprocal tariffs nears its end, Trump emphasized that his team is prepared to finalize deals quickly. “We’ve been in talks with many, many world leaders,” he said, expressing confidence that talks will “go pretty quickly.”

White House Press Secretary Karoline Leavitt added that the administration has received 18 formal proposals from other countries engaged in trade negotiations, another sign that momentum is building behind Trump’s broader push to restructure global trade in favor of American workers and businesses.

(Li Xueren/Xinhua via AP)

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