Business
Growing the government won’t help Canada’s economy
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 Quebec, Nova 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.
Authors:
From the Daily Caller News Foundation
By Thomas English
President Donald Trump’s Monday executive order establishing the Department of Government Efficiency (DOGE) presents a more modest scope for the initiative, focusing primarily on “modernizing federal technology and software.”
The executive order refashions the Obama-era United States Digital Service (USDS) into the United States DOGE Service. Then-President Barack Obama created USDS in 2014 to enhance the reliability and usability of online federal services after the disastrous rollout of HealthCare.gov, an insurance exchange website created through the Affordable Care Act (ACA). Trump’s USDS will now prioritize “modernizing federal technology and software to maximize efficiency and productivity” under the order, which makes no mention of slashing the federal budget, workforce or regulations — DOGE’s originally advertised purpose.
“I am pleased to announce that the Great Elon Musk, working in conjunction with American Patriot Vivek Ramaswamy, will lead the Department of Government Efficiency (‘DOGE’),” Trump said in his official announcement of the initiative in November. “Together, these two wonderful Americans will pave the way for my Administration to dismantle Government Bureaucracy, slash excess government regulations, cut wasteful expenditures, and restructure Federal Agencies.”
The order’s focus on streamlining federal technology and software stands in contrast to some of DOGE’s previously more expansive aims, including Elon Musk’s claim that “we can [cut the federal budget] by at least $2 trillion” at Trump’s Madison Square Garden rally in November. Musk now leads DOGE alone after Vivek Ramaswamy stepped down from the initiative Monday, apparently eying a 2026 gubernatorial run in Ohio.
The order says it serves to “advance the President’s 18-month DOGE agenda,” but omits many of the budget-cutting and workforce-slashing proposals during Trump’s campaign. Rather, the order positions DOGE as a technology modernization entity rather than an organization with direct authority to enact sweeping fiscal reforms. There is no mention, for instance, of trillions in budget cuts or a significant reduction in the federal workforce, though the president did separately enact a hiring freeze throughout the executive branch Monday.
“I can’t help but think that there’s more coming, that maybe more responsibilities will be added to it,” Susan Dudley, a public policy professor at George Washington University, told the Daily Caller News Foundation. Dudley, who was also the top regulatory official in former President George W. Bush’s administration, said the structure of the new USDS could impact the recent lawsuits against the DOGE effort.
“I think it maybe moots the lawsuit that’s been brought for it not being FACA,” Dudley said. “So if this is how it’s organized — that it’s people in the government who bring in these special government employees on a temporary basis, that might mean that the lawsuit doesn’t really have any ground.”
Three organizations — the American Federation of Government Employees (AFGE), National Security Counselors (NSC) and Citizens for Responsibility and Ethics in Washington (CREW) — separately filed lawsuits against DOGE within minutes of Trump signing the executive order. The suits primarily challenge DOGE’s compliance with the Federal Advisory Committee Act (FACA), alleging the department operates without the required transparency, balanced representation and public accountability.
The order also emphasizes not “be construed to impair or otherwise affect … the authority granted by law to an executive department or agency, or the head thereof; or the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.”
“And the only mention of OMB [Office of Management and Budget] is some kind of boilerplate at the end — that it doesn’t affect that. But that’s kind of general stuff you often see in executive orders,” Dudley continued, adding she doesn’t “have an inside track” on whether further DOGE-related executive orders will follow.
“It’s certainly, certainly more modest than I think Musk was anticipating,” Dudley said.
Trump’s order also establishes “DOGE Teams” consisting of at least four employees: a team lead, a human resources specialist, an engineer and an attorney. Each team will be assigned an executive agency with which it will implement the president’s “DOGE agenda.”
It remains unclear whether Monday’s executive order comprehensively defines DOGE, or if additional orders will be forthcoming to broaden its mandate.
From Conservative Party Communications
The Hon. Pierre Poilievre, Leader of the Conservative Party of Canada and the Official Opposition, released the following statement on the threat of tariffs from the US:
“Canada is facing a critical challenge. On February 1st we are facing the risk of unjustified 25% tariffs by our largest trading partner that would have damaging consequences across our country. Our American counterparts say they want to stop the illegal flow of drugs and other criminal activity at our border. The Liberal government admits their weak border is a problem. That is why they announced a multibillion-dollar border plan—a plan they cannot fund because they shut down Parliament, preventing MPs and Senators from authorizing the funds.
“We also need retaliatory tariffs, something that requires urgent Parliamentary consideration.
“Yet, Liberals have shut Parliament in the middle of this crisis. Canada has never been so weak, and things have never been so out of control. Liberals are putting themselves and their leadership politics ahead of the country. Freeland and Carney are fighting for power rather than fighting for Canada.
“Common Sense Conservatives are calling for Trudeau to reopen Parliament now to pass new border controls, agree on trade retaliation and prepare a plan to rescue Canada’s weak economy.
“The Prime Minister has the power to ask the Governor General to cut short prorogation and get our Parliament working.
“Open Parliament. Take back control. Put Canada First.”
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