Canada Has Strong Population Growth But Poor Productivity: OECD

Canada’s growth strategy is ineffective, and actually putting it further behind. That’s the general takeaway from the OECD’s 2024 Economic Outlook for Canada. The intergovernmental organization representing advanced economies, congratulates the country on its record population growth. It’s unclear how this occurs with low real GDP growth and rising unemployment, but the agency has a few suggestions to mitigate the issue. 

The suggestions include tighter fiscal spending, facilitating more productive investment, and creating a more tax-friendly business environment. Canada is currently heading in the opposite direction with those suggestions, suffocating its growth potential and amplifying its problems. 

Canada’s Population Is Booming. It’s Economy? Not So Much 

Canada’s rapid population growth is getting a lot of attention. The annual growth rate hit 3.1% in 2023, the highest growth since the 1950s. Large migrations are typically towards strong economies—attracting those looking for opportunity. It also typically helps to boost growth since more people means more consumption. None of that is seen in Canada.

The OECD emphasizes how oddly slow Canada’s growth is despite these conditions. Real GDP advanced just 1.1% in 2023, nearly a third of the population growth. At the same time, they also point out that unemployment climbed to 6.1% in March as the country added more people than jobs. 

Like a degenerate gambler, Canada found a little growth from its rising population. Then, it placed a bet to go all-in on that growth, despite diminishing returns that placed it in a worse situation than it was previously trying to solve. 

“Meanwhile, high levels of immigration are helping relieve skill shortages and bring upside risks for private consumption, while also increasing strains on housing markets,” reads the report. 

They further note, “Developments in housing debt and related financial stress among households need to be monitored carefully.” 

Canadian Productivity Is Plummeting Despite Population Boom

With such large amounts of capital, it’s no surprise that Canada has seen a residential surge. Unfortunately, the capital is being diverted from productive investment, as incentives slant toward housing investment instead of business. The poor policy decisions are amplifying the country’s economic growth issues. 

Source: OECD.

“Canada’s absence of sustained labor productivity growth in recent years underscores a need to ensure a policy environment that enables the business sector to become more efficient and to move up value-added chains through increasingly productive activities,” notes the report. 

They continue to explain that increased output would create higher wages and household incomes. This, in turn, would help increase revenues and lower the dependency problem they’re trying to solve. Canada is currently doing the exact opposite. 

Canada is making progress in one area, though—a stable macroeconomic environment. The OECD states that well-anchored inflation and sustainable fiscal finances are important, and Canada has accomplished that thus far. 

They do warn that Canada is heading in the wrong direction when it comes to its fiscal sustainability. “Fiscal sustainability requires implementing credible medium-term plans for lowering federal government debt, aided by ongoing measures to improve spending efficiency,” they warn.
 

Spending efficiency is bureaucrat for running a tighter budget. They state that planned increases to taxes can help with spending but go on to note that tax reform needs to consider the economic environment. 

“Tax reforms should include reconsideration of preferential rates of tax for small businesses, which may affect small firms’ productivity growth and distort the allocation of resources across different types of firms,” reads the report. 

Overall, the OECD believes that Canada’s weak productivity emphasizes the need for a more business-friendly environment with a “more growth-friendly tax mix.” They further cite examples of removing interprovincial trade barriers, facilitating employment, and efficient policy on green transition. The latter of which they applaud subsidies, but warn they need to be removed as cost-effective solutions come to market. It is, after all, further spending that requires more debt capital for debt servicing.

14 Comments

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  • Reply
    Omar 1 week ago

    We all know the capital gains tax isn’t about the capital gains tax and a distraction from something else truly heinous in that budget we missed, right?

    • Reply
      KG 1 week ago

      Probably just avoids general scrutiny. The gov glossed over issues like corruption at Global Affairs (they discovered insider contracts issued).

      It’s an example of bread and circuses. Are you not entertained?

  • Reply
    Trevor Peters 1 week ago

    Forgive me because I’m not a finance person but is the takeaway the “forced” growth has an external cost not accounted for? Like working out too much results in less muscle, not more.

    By adding more and more people, we’re increasing liabilities and reversing progress, not making any? Now we have both the cost of the original demographic problem, with an additional cost related to unemployment and housing? Thank you in advance for any insight and I apologize if that’s the wrong takeaway?

    • Reply
      Ethan Wu 1 week ago

      Sounds like you got it. Eating sugar gives you a boost of energy. Eating only sugar makes you fat and feel like you have no energy. That’s the government’s addiction to real estate investment—it wants just the real estate investment.

      So much it drums up kookie schemes like private colleges just to drum up rents. Double billing young people to rent by the gov purchasing the asset risk-free for private companies, etc.

      If someone looked in from the outside as a forensic accountant and saw what was happening in Canada and ignored the governments framing, it would look like we were trafficking uber eats and instacart employees, just so investors can have a steady stream of payers.

    • Reply
      rmccam 1 week ago

      I’m not an economist but my general understanding is that immigration is needed to offset low birth rates and ensure that the country keeps running and growing as generations age (labour, paying into CPP, etc.), but the current issue is that we have not brought in the right skills (or any skills at all, in some cases), so they become a liability. Immigration is an amazing tool when used correctly—you need electricians and *poof* you get trained electricians. But if you need an electrician and get a fax machine repairman… well, it doesn’t help much. And now that person is unemployed until they can, in theory, be retrained.

      • Reply
        JJ 7 days ago

        The low birth rates in this country are a direct consequence of the insanely high cost of living here; if corrupt govts had kept interest rates to something normal like 3-4% after 2008 (when the housing market here did NOT need a boost), house prices and household debt would be half as much, young families could live in affordable suitable housing, and they would have the children they want. Problem solved!

  • Reply
    Lou Chao 1 week ago

    Probably wouldn’t needs the capital gains tax if they didn’t send so much taxpayer cash to companies to build rental housing they knew were being bought by the big boys like Blackrock and Blackstone.

    They sold this as the rich paying their fair share but really renters are paying 1/3 of their income to rent places a good share of their income paid to build. Now that’s irony!

    People pretend it’s ridiculous for Chinese to own but we know if we don’t, in the long run we’ll find ourselves in this situation. Buy a piece of land, even if you have to go further south in Ontario. It’s better than the being a lifer, and soon you’ll be too old to strap down spending to make the payments that only feel hard in the first few years.

    • Reply
      Ethan Wu 1 week ago

      They’re exploiting that mindset though. Keep buying at any cost, it’ll never get better. If it does get better, the person at the end of that lease is the one left in the heat.

  • Reply
    KG 1 week ago

    Speaking of no fiscal restraints, I’m starting to get more self-employed clients that had been overpaying their taxes are getting fairly random re-assessment notices from the CRA claiming they owe money.

    When I go over the taxes with them, they’ve been getting refunds. I’m wondering if they’re just hitting every self-employed person with a random number and hoping they pay the bill.

    Been around a long time and this is the first government, Liberal or Conservative, that treated job makers and self employed people (who typically make less than gov employed and find their own incomes), as criminals. It makes me very uncomfortable when they can’t justify the amount too.

    • Reply
      AY 1 week ago

      Really sad to hear that, and to know that the only sector to recover from covid is the government, private is falt and small businesses are going broke, but at least the CRA collected a pittance more tax revenue.

  • Reply
    Jenn 1 week ago

    Don’t worry Marc miller and Sean Fraser will rubber stamp a billion bogus student visas in order to bring the Hong Kong cage life to Canadians paying luxury acres of Italian villa prices.

  • Reply
    Jimmy Ramos 4 days ago

    That’s an intriguing contrast! Population growth often signals economic potential, but productivity is crucial for sustainable growth and prosperity. It highlights the importance of fostering innovation, education, and efficient business practices to maximize the benefits of a growing population. Have you noticed any specific initiatives or strategies in Canada aimed at improving productivity, or do you have insights into how these challenges are being addressed? Sharing your thoughts could spark meaningful discussions on economic development and policy!

    https://www.ayalalandpremier.com/our-portfolio/the-courtyards-at-vermosa/

  • Reply
    Yoroshiku 4 days ago

    I wonder how much of this is because Canada’s economy is so heavily dependent on real estate speculation.

  • Reply
    Kevin 23 hours ago

    I’d be interested to see how much job automation and AI have factored into the drop in GDP per worker. I doubt it would reverse the trend, but I’d be willing to bet that it would reduce the trend by a bit.
    I agree with most others here that immigration is required to sustain society, but also agree that more targeted immigration is recommended.

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