Lessons from Canada’s Dying Economy

For decades, Canada stood as a beacon of hope and prosperity on the world stage. With its vast natural resources, universal healthcare, diverse and welcoming cities, and reputation for safety and stability, Canada was often viewed as a paradise destination. Countless individuals and families dreamed of making the Great White North their home, drawn by the promise of high living standards, economic opportunities, and a society that valued multiculturalism and social harmony. I visited Toronto in 2007 and can remember feeling like I had stepped into a utopian future in which prosperity and order seemed to combine perfectly with social cohesion and progress.

However, since 2015 Canada's economic landscape has undergone a dramatic transformation. The once-thriving nation now faces a multitude of challenges that have tarnished its image and left many residents struggling to make ends meet. High immigration rates, a lack of investment in key sectors, burdensome taxes and regulations and a housing market that is spiralling out of control have combined to create an economic environment that many describe as dire. As a result, Canada now finds itself grappling with brain drain, declining living standards, and a growing sense of disillusionment among its populace.

Currently, 1 in 4 Canadians live in poverty, house prices are 10 times average earnings, food bank use has increased by 38% since 2022, personal debt is approaching an all-time high and homelessness is increasingly rapidly in major cities. The OECD now predicts that Canada will be the worst performing advanced economy over the next three decades. This stark reversal of fortune holds important lessons for nations around the globe. By examining the factors that have contributed to Canada's economic decline, other countries can gain valuable insights into the pitfalls of certain policies and the importance of maintaining a balanced and sustainable approach to growth and development.

Mass Immigration

Canada has long prided itself on being a nation of immigrants, with a points-based system designed to attract skilled workers from around the world. However, in recent years, the scale and pace of immigration have outstripped the country's ability to integrate newcomers effectively. The Canadian population increased from 34 million in 2010 to 40 million in 2024, representing an 18% increase in 14 years, this is amongst the highest in the developed world. While the federal government continues to set ambitious targets for annual immigration levels, which are around 500,000 per year, the infrastructure and services needed to support this influx have not kept pace with arrivals.

The result has been increased pressure on housing markets, healthcare systems, and educational institutions in major urban centres. Many newcomers struggle to find suitable employment that matches their qualifications, leading to under-employment and wage suppression in certain sectors due to the abundance of cheap labour. Additionally, the rapid demographic changes have sparked social tensions in some communities, challenging Canada's multicultural model that was once the envy of the developed world. Most immigrants are also males between the ages of 18-45 and this has led to an imbalance between men and women which creates its own set of problems.

Mass immigration is normally a tell-tale sign of a dying economy because it boosts the GDP number, without increasing per capita wealth and productivity. The over-supply of labour also means a suppression of wages and an increase in consumption which benefits certain businesses but not the nation as a whole. This is especially the case if the government does not make corresponding investments in infrastructure and housing to manage the increase in numbers. Thus, recent data shows that roughly half of new immigrants to Canada are not seeking citizenship with many of them already making plans to leave.

Furthermore, this drive for mass immigration was sold to the public on the basis that there were significant labour shortages in the country, a claim which has now turned out not to be true. It seems there were only ever labour shortages in low-wage industries, suggesting the issue was never a shortage of people per se, rather a shortage of people prepared to work low wage jobs. The negative of impact of mass immigration in Canada is now widely acknowledged and a backlash against government policy and deceptive rhetoric on this issue is starting to brew.

House Prices

Canada’s reckless immigration policies have also been accompanied by unsustainably high house prices which are wreaking havoc across major cities and putting a huge strain on personal finances. In major cities like Toronto and Vancouver, as well as many smaller communities, housing prices have skyrocketed far beyond the reach of average earners. The median home price in Toronto, for example, now exceeds 1.2 million Canadian dollars, while Vancouver's market is even more expensive. Canada has no plan to cool the over-heated housing market because it believes that would risk crashing the economy as a whole. As a result, young Canadians are delaying family formation and homeownership, often well into their 30s or 40s, and businesses struggle to attract and retain talent due to high living costs.

What has not helped the situation is the fact that foreign buyers are increasingly using Canadian real estate as a safe haven for capital, which bloats prices further. The local real estate market is also a prime target for money launderers with a lot of dubious Chinese money finding its way to British Columbia for that purpose. Estimates suggest between 45 -115 billion Canadian dollars is being laundered through real estate and current auditing practises do not seem able to monitor and disrupt this activity.

It is not just house prices that are the problem, rents are also sky high and there is a serious lack of available housing stock. In many major Canadian cities rent accounts for more than 60% of average income and that number goes to over 100% in places like Toronto and Vancouver. Furthermore, it is not uncommon to see long queues for apartment viewings, since the supply and demand ratio is so out of kilter, and, in some cases, people are even renting out one side of their own bed.

Taxes

Canada's extensive social programs and public services come at a cost, primarily in the form of high tax rates and a complex regulatory environment. While many Canadians value the country's social safety net, there is growing concern that the current system is unsustainable and acts as a drag on economic growth. Personal income tax rates in several provinces now exceed 50% for high earners, while the combination of federal and provincial corporate taxes makes Canada less competitive than many of its peers. Additionally, the layers of regulation at federal, provincial, and municipal levels create a bureaucratic maze that can be daunting for businesses, particularly small and medium-sized enterprises.

This high-tax, high-regulation environment has had several negative effects. Firstly, it discourages entrepreneurship and risk-taking, driving talented individuals to seek opportunities in lower-tax jurisdictions. Secondly, it reduces the disposable income of middle-class families which has a knock-on effect on the wider economy. Thirdly, it creates inefficiencies that hamper productivity and innovation which leads to a significant brain-drain. Therefore, talented professionals, particularly in fields like technology, finance, and healthcare, are increasingly looking to the United States and other countries for better career prospects and more affordable lifestyles. This deprives the country of the very individuals needed to drive innovation, productivity, and growth. Moreover, it creates a self-reinforcing cycle; as top talent leaves, companies have less incentive to invest in Canada, further reducing opportunities for those who remain.

Beyond the aforementioned issues, Canada has many other problems too. Food price inflation is amongst the highest in the developed world running at over 10% in recent years with a small number of outlets maintaining a monopoly. Unsurprisingly, crime rates are on the rise with the homicide and sexual assault rates at a three-decade high. Drug use and the drug related deaths are also on the rise across the country. Foreign Direct Investment (FDI) is amongst the lowest in the developed world, mainly due to the difficult of doing business, and this has led to a crumbling infrastructure which makes the country less competitive in many sectors. Finally, the Canadian dollar has also been losing value when compared to the US dollar and other major currencies, it has gone from 1.03 USD in 2011 to 0.73 today which is an almost 30% decline. All in all, it is a grim picture as a once proud nation seems to be sliding towards economic ruin and social fracture.

Lessons

Canada's journey from economic darling to struggling nation serves as a stark reminder of how quickly fortunes can change in the global economy, especially if a nation seeks quick and easy fixes to complex economic and structural challenges. Reliance on mass immigration and a bloated housing market is not a sustainable economic strategy and is likely to cause more problems than it solves in the long-term. It is certainly no substitute for investment in industry, education, infrastructure and innovation. Most people are more concerned about their quality of life then a high GDP figure, which is utterly meaningless if wealth is not distributed. Furthermore, and despite what we are often told, what is good for big business is rarely good for most people.

Furthermore, high taxes and a welfare state only works in the context of a society that is built around common values and social bonds. Once immigration rates are unsustainably high, the social contract starts to breaks down because people feel their taxes are going towards people they do not share a sense of common purpose with. This feeling of resentment is exacerbated when house prices are also going through the roof, public services are struggling to meet demand and people can no longer make ends meet.

Treating a nation as PLC rather than a family has dire consequences and those are now all too apparent in the North American nation. Unfortunately, the UK seems to be heading in a similar direction albeit at a slower pace. We seem equally bereft of ideas and have relied on mass immigration and a bloated housing market for far too long and the consequences of that are starting to become visible. It may not been too late for us to change course before we become an economic basket case, or even worse, Canada.