The Liberal government’s economic strategy is “ineffective” at spurring growth according to the Organisation for Economic Co-operation and Development.
The international body composed of high-GDP nations released a report saying that the current path continues to put Canada further behind.
In its 2024 Economic Outlook for Canada, the intergovernmental agency said that Canada hasn’t been seeing the GDP benefits it should from its record-breaking population growth.
Despite Canada seeing the highest population spike since 1957, economic growth has remained low and unemployment continues to rise.
The OECD’s report suggests that the federal government should reduce its fiscal spending to create more productive investment and do more to facilitate a tax-friendly business 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,” suggests the report.
However, the Trudeau government continues to enforce policies which push the country’s economy in the opposite direction, exacerbating its existing problems.
“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,” reads the report.
Normally, more people would mean more consumption, leading to a stronger economy, however, that hasn’t been the case for Canada in recent years.
This oddity has perplexed the OECD, which noted that despite its significant population growth, Canada only saw 1.1% real GDP growth in 2023.
“The economy barely grew in the second half of 2023 (real GDP shrank by 0.1% in the third quarter and increased by only 0.2% in the fourth). Business was particularly weak, shrinking by 7.7% in the final quarter of 2023.” reads the report.
The OECD said that “employment continues to grow more slowly than the population,” with Canada’s unemployment rate increasing to 6.1% in March and then again to 6.2% in May.
The report attributes this issue to “large temporary and permanent inflows” of immigration.
While those inflows have aided certain skill shortages, they’ve als0 contributed to the housing shortage, which continues to persist.
RBC’s chief economist Richard Hogue published a report in April saying that Canada would need to double its housing construction to meet the demand of newcomers.
According to Hogue’s calculations, Canada must build a minimum of 320,00 housing units annually from now until 2030 to keep up with the demand.
“Higher deliveries would need to happen in the near term given our expectation for peak population growth in 2023-2024,” wrote Hogue.
The OECD’s report arrived at a similar conclusion.
“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.
The report recommended that increasing housing debts and related financial stress be “monitored carefully.”
“Fiscal sustainability requires implementing credible medium-term plans for lowering federal government debt, aided by ongoing measures to improve spending efficiency,” warned the OECD.
One measure that the Trudeau government could take to improve employment would be to remove interprovincial trade barriers, suggested the report.