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Growth of government undermines Canadian economy: report

Lorrie Goldstein

Published Mar 26, 2024  •  Last updated 5 days ago  •  3 minute read

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Combined federal, provincial and municipal government spending across Canada accounts for 40.5% of the entire Canadian economy, far above the ideal level of 26% to 30% needed to maximize economic growth, according to a study by the Fraser Institute released Tuesday.

“When governments exceed that size, it imposes negative effects on the economy, such as crowding out private investment, but without providing proportionate benefits such as greater social progress,” said the report  — “The Size of Government in Canada in 2022” — by the fiscally conservative think tank.

“It is important to understand just how much governments across Canada have grown in recent years, and what impact that might have on our economy going forward,” said report co-author Jake Fuss.

At the height of the pandemic in 2020, total government spending skyrocketed to 51.9% of the Canadian economy, before declining to 45.3% in 2021 and 40.5% in 2022, still slightly ahead of public spending in 2019 — the year before the pandemic hit — when it was 40.3% of the Canadian economy.

In 2007, the first year of the study, total government spending across Canada was 37.4% of Canada’s Gross Domestic Product (GDP).

Neither Canada as a whole, nor the individual provinces, have ever come close to staying under the recommended 26% to 30% target since 2007, except for Alberta, where in 2022 — the latest year of available data — government spending totalled 26.8% of the province’s GDP.

The highest level of government spending as a percentage of GDP in 2022 occurred in Nova Scotia at 63%, followed in descending order by Prince Edward Island (58.3%); New Brunswick (57.6%); Quebec (49.8%); Manitoba (49.4%); Newfoundland and Labrador (44.1%); Ontario (40.1%); British Columbia (35.6%); Saskatchewan (32.8%) and Alberta (26.8%).

Study co-author Alex Whalen said in terms of the percentage of government spending in relation to GDP, “the size of government increased in eight of 10 provinces (the exceptions were P.E.I. and Saskatchewan) and the country as a whole over the last decade-and-half.”

The study also found the percentage of public sector employees compared to total employment increased across Canada as a whole and in every province between 2007 to 2022, which is significant because, “governments in Canada represent some of the largest employers in the country and spending on public employment represents the single biggest driver of overall government spending.”

Across Canada, public sector workers in 2022 made up 21.2% of the total Canadian workforce, up from 19.2% in 2007.

Newfoundland and Labrador in 2022 had the highest percentage of public sector employees compared to total employment at 30.3%, followed in descending order by Prince Edward Island (29.1%); Saskatchewan (27%); New Brunswick (26.9%); Manitoba (26.5%); Nova Scotia (25.3%); Quebec (23.3%); British Columbia (19.7%); Ontario (19.6%) and Alberta (18.5%).

Prince Edward Island and Newfoundland and Labrador had the largest increases in public sector employment as a share of total employment between 2007 and 2015 (4.6 and 4.0 percentage points, respectively), while Ontario and Alberta had the smallest increases (1.4 and 1.7 percentage points, respectively).

“From the data, it is clear the size of government in Canada has been growing for some time,” the study concluded.

“Canada as a whole, and all but two provinces, saw an increase in government spending relative to the economy since 2007.

“Furthermore, every province experienced an increase in public sector employment as a share of total employment since 2007” as well as an increase across Canada as a whole.


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