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Economy

Finance minister misleading Canadians about economic growth

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From the Fraser Institute

By Jake Fuss and Grady Munro

Finance Minister Chrystia Freeland recently said Canada will have “the strongest economic growth in the G7.” But is that true? And are Canadians better off because of it?

The Trudeau government regularly uses comparisons among  G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) to gauge Canada’s economic performance. And when comparing economic growth in the aggregate (meaning overall growth, as measured by GDP), Minister Freeland is correct that Canada’s economy performs well compared to the rest of the G7.

Specifically, from 2000 to 2023, Canada’s average GDP growth (adjusted for inflation) was second-highest in the G7 at 1.8 per cent annually (only behind the U.S.). And in a recent report, the International Monetary Fund projected that Canada’s overall GDP growth will be second-highest in 2024, and lead the G7 in 2025.

But there’s a serious problem with these measures—they fail to account for population growth rates in each country and therefore don’t measure whether or not individuals are actually better off.

Simply put, economies grow when there are more people producing goods and services (i.e. the population grows) or when people are able to produce more per hour worked (i.e. productivity increases). In recent years, the Canadian economy has grown almost exclusively due to population growth, which has grown at historic rates due to record levels of immigration, while productivity has declined to the point it’s now considered an emergency.

In fact, from 2000 to 2023, Canada led the G7 in average annual population growth, which has served to inflate the country’s rate of aggregate GDP growth.

So, to more accurately measure Canada’s economic performance relative to other countries, economists use GDP per person, which accounts for differing population growth rates. This measure is a much better indicator of individual incomes and living standards.

On this measure, Canada is an economic laggard. Canada’s average annual growth rate in GDP per person (inflation-adjusted) from 2000 to 2023 was 0.7 per cent—tied for second-last in the G7, above only Italy (0.1 per cent).

If you include a broader subset of advanced economies, and focus on the Trudeau government’s tenure, the picture is even worse. From 2014 to 2022 (the latest year of available data), Canada was tied for the third-lowest average annual growth rate in inflation-adjusted GDP per person out of 30 countries in the Organisation for Economic Cooperation and Development (OECD). Canada’s average growth rate during that period (0.6 per cent) was only ahead of Luxembourg (0.5 per cent) and Mexico (0.4 per cent).

Looking ahead, Canada’s long-term economic prospects are similarly dismal. According to the OECD, Canada is expected to see the lowest average annual growth rate in GDP per person in the OECD, from 2020 to 2030 and 2030 to 2060.

When Minister Freeland boasts about aggregate GDP numbers—while ignoring how historic levels of population growth fuelled by record-high immigration inflate the numbers—she’s misleading Canadians. In reality, Canadian living standards are falling behind the rest of the developed world, and are expected to fall further behind in years to come.

Business

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

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Quick Hit:

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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2025 Federal Election

Next federal government should end corporate welfare for forced EV transition

Published on

From the Fraser Institute

By Tegan Hill and Jake Fuss

Corporate welfare simply shifts jobs and investment away from other firms and industries—which are more productive, as they don’t require government funding to be economically viable—to the governments’ preferred industries and firms, circumventing the preferences of consumers and investors. And since politicians spend other people’s money, they have little incentive to be careful investors.

General Motors recently announced the temporary closure of its electric vehicle (EV) manufacturing plant in Ontario, laying off 500 people because its new EV isn’t selling. The plant will shut down for six months despite hundreds of millions in government subsides financed by taxpayers. This is just one more example of corporate welfare—when governments subsidize favoured industries and companies—and it’s time for the provinces and the next federal government to eliminate it.

Between the federal government and Ontario government, GM received about $500 million to help fund its EV transition. But this is just one example of corporate welfare in the auto sector. Stellantis and Volkswagen will receive about $28 billion in government subsidies while Honda is promised $5 billion.

More broadly, from 2007 to 2019, the last pre-COVID year of data, the federal government spent an estimated $84.6 billion (adjusted for inflation) on corporate welfare while provincial and local governments spent another $302.9 billion. And crucially, these numbers exclude other forms of government support such as loan guarantees, direct investments and regulatory privileges, so the actual cost of corporate welfare during this period was much higher.

Of course, politicians claim that corporate welfare benefits workers. Yet according to a significant body of research, corporate welfare fails to generate widespread economic benefit. Think of it this way—if the businesses that received subsidies were viable to begin with, they wouldn’t need government support. So unprofitable companies are kept in business through governments’ support, which can prevent resources, including investment and workers, from moving to profitable companies, hurting overall economic growth.

Put differently, rather than fuelling economic growth, corporate welfare simply shifts jobs and investment away from other firms and industries—which are more productive, as they don’t require government funding to be economically viable—to the governments’ preferred industries and firms, circumventing the preferences of consumers and investors. And since politicians spend other people’s money, they have little incentive to be careful investors.

Governments also must impose higher tax rates on everyone else to pay for corporate welfare. In turn, higher tax rates discourage entrepreneurship and business investment—again, which fuels economic growth. And the higher the tax rates, the more economic activity they discourage.

GM’s EV plant shut down once again proves that when governments try to engineer the economy with corporate welfare, workers will ultimately lose. It’s time for the provinces and the next federal government—whoever it may be—to finally put an end to this costly and ineffective policy approach.

Tegan Hill

Director, Alberta Policy, Fraser Institute

Jake Fuss

Director, Fiscal Studies, Fraser Institute
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