From the Fraser Institute

By Jock Finlayson

As the new year beckons, Canadian policymakers, workers and consumers are staring at a turbulent and uncertain economic landscape. While the economy has been growing, the population has been increasing faster—leading to a two-year slide in economic output and real income, measured on a per-person basis. The result has been a visible decline in Canadian living standards amid a largely stagnant economy.

Looking ahead to 2025, Canada faces two big uncertainties. The first is linked to the return of Donald Trump who has made a host of jaw-dropping promises including a pledge to slap a 25 per cent tariff on all merchandise imports from Canada and Mexico on day one of his administration. Should he follow through with that plan, our economy will be plunged into recession.

Last year, Canada sold $593 billion of goods to the United States, along with more than $85 billion in “services,” together representing more than three-quarters of our total international exports. The Canadian industries that will take the biggest hit from possible Trumpian tariffs include energy, automobile and parts manufacturing, wood products, all types of machinery and equipment, consumer products, minerals and metals and agri-food.

While the threatened across-the-board tariffs may never materialize, it’s a safe bet that Trump’s presidency portends rocky times for the Canada-U.S. relationship. The near-certainty of increased U.S. restrictions on Canadian exports, coupled with the likelihood of tax cuts and sweeping regulatory reforms, means many larger and mid-sized Canadian companies will be tempted to redirect their capital and business growth ambitions to the south, thereby dampening domestic investment. In response, governments in Ottawa and the provinces should urgently improve the environment for investment at home.

Another source of economic uncertainty is the federal government’s decision to ratchet back immigration. Ottawa’s about-face on immigration ranks as one of the most dramatic reversals of Canadian public policy in half a century. Under the Trudeau Liberals, Canada has become wholly reliant on immigration-fuelled labour-force growth to drive the economy, as productivity—the other key contributor to long-term economic growth—has stalled. Higher immigration has indeed boosted economic activity, albeit without delivering gains in per-person income.

Now, federal policymakers intend to cut permanent immigration, impose sharp curbs on international students, and somehow engineer the departure of 1.3 million temporary residents currently living in Canada—all over the next two years. Exactly how and to what extent this will play out is unclear. After three years of rapid population growth, Canada could experience a flat or even slightly declining population. Lower immigration is necessary after a period of almost uncontrolled inflows, but zero or negative population growth will detract from economy-wide spending and put a dent in labour supply. The outcome will be slower economic growth in 2025-26 than otherwise would be the case.

Closer to home, the Trudeau government presides over a structurally weak economy where much of the growth has been coming from a ballooning public sector while large swathes of the business community shrink or sit on the sidelines. On Trudeau’s watch, government debt has soared, business investment has been chronically sluggish, and Canada’s ranking on surveys of global competitiveness has dropped. We can do better.

Rather than continuing to expand the size of government, policymakers should aim to revitalize the private-sector economy that still produces most of the country’s output and accounts for the bulk of Canada’s jobs, exports and innovations.

Jock Finlayson

Senior Fellow, Fraser Institute

By Tegan Hill

Each Albertan would save up to $2,850 in 2027—the first year of the hypothetical Alberta plan—while retaining the same benefits as the CPP. Meanwhile, the basic CPP contribution rate for the rest of Canada would increase to 10.36 per cent.

Despite a new report from Canada’s chief actuary about Alberta’s potential plan to leave the Canada Pension Plan (CPP) and start its own separate provincial pension plan, Albertans still don’t have an official estimate from Ottawa about Alberta’s share of CPP assets.

The actuary analyzed how the division of assets might be calculated, but did not provide specific numbers.

Yet according to a report commissioned by the Smith government and released last year, Alberta’s share of CPP assets totalled an estimated $334 billion—more than half the value of total CPP assets. Based on that number, if Alberta left the CPP, Albertans would pay a contribution rate of 5.91 per cent for a new CPP-like provincial program (a significant reduction from the current 9.9 per cent CPP rate deducted from their paycheques). As a result, each Albertan would save up to $2,850 in 2027—the first year of the hypothetical Alberta plan—while retaining the same benefits as the CPP. Meanwhile, the basic CPP contribution rate for the rest of Canada would increase to 10.36 per cent.

Why would Albertans pay less under a provincial plan?

Because Alberta has a comparatively younger population (i.e. more workers vs. retirees), higher average incomes and higher levels of employment (i.e. higher level of premiums paid into the fund). As such, Albertans collectively pay significantly more into the CPP than retirees in Alberta receive in benefits. Simply put, under a provincial plan, Albertans would pay less and receive the same benefits.

Some critics, however, dispute the estimated share of Alberta’s CPP assets (again, $334 billion—more than half the value of total CPP assets) in the Smith government’s report, and claim the estimate understates the report’s contribution rate for a new Alberta pension plan and overestimates the new CPP rate without Alberta.

Which takes us back to the new report from Canada’s chief actuary, which was supposed to provide its own estimate of Alberta’s share of the assets. Unfortunately, it did not.

But there are other rate estimates out there, based on various assumptions. According to a 2019 analysis published by the Fraser Institute, the contribution rate for a new separate CPP-like program in Alberta could be as low as 5.85 per cent, while AIMCo’s 2019 estimate was 7.21 per cent (and possibly as low as 6.85 per cent). And University of Calgary economist Trevor Tombe has pegged Alberta’s hypothetical rate at 8.2 per cent.

While the actuary in Ottawa failed to provide any numbers, one thing’s for certain—according to the available estimates, Albertans would pay a lower contribution rate in a separate provincial pension plan while CPP contributions for the rest of Canada (excluding Quebec) would likely increase.

Tegan Hill

Director, Alberta Policy, Fraser Institute