According to a recent poll, two-thirds of Canadians believe the economy is headed in the wrong direction. Clearly, there’s a disconnect between economic statistics, which show the Canadian economy is growing, and the experiences of Canadians who feel like they’re falling behind. In reality, Canadians are on the cusp of the worst decline in living standards in 40 years, with no end in sight.

When measured in aggregate, the Canadian economy is growing albeit weakly. In 2023, the economy grew by 1.1 per cent, after adjusting for inflation. And so far this year, it grew by 0.5 per cent in January and 0.2 per cent in February. But these statistics don’t account for changes in the population. It’s possible for the aggregate economy to grow because more people are coming to Canada (i.e. immigration) while per-person income levels decline. This happens when the growth in the overall economy is insufficient to account for the growth in the number of people in the economy. And unfortunately for Canadians, this is exactly what’s happening now.

In 2023, Canada’s population grew by 3.2 per cent or nearly 1.3 million people—the highest annual population growth rate since 1957, and nearly three times the rate of inflation-adjusted economic growth.

According to a new study, from the second quarter of 2019 (well before COVID) to the end of 2023, Canadians experienced a decline in living standards, as measured by per-person GDP (inflation-adjusted). Except for one fiscal quarter of reprieve, this 18-quarter period represents the second-longest period of per-person GDP decline over the last four decades (exceeded only by the 21-quarter decline from the late-1980s to 1994). But critically, the current decline (based on the latest data available for the end of 2023) has not yet ended and may extend into 2024.

Moreover, the percentage decline in living standards (again, as measured by per-person GDP) is the third-steepest of any decline over the last four decades at -3.0 per cent (exceeded only by declines from the late-1980s to the early-1990s and from 2008 to 2009, which both eclipsed 5.0 per cent). But again, the current decline has not yet ended and we could see continued declines in living standards when the 2024 data is released. Simply put, Canadians could be experiencing the worst decline in living standards of the last 40 years.

Several leading economists have already raised alarm bells over our economic decline, including Carolyn Rogers, senior deputy governor of the Bank of Canada, who recently said it was time to “break the glass” to solve Canada’s productivity crisis. Unfortunately, despite the calls for genuine reform, the federal and provincial governments this past budget season largely maintained the status quo and continued to borrow and spend, with no government demonstrating its intransigence more that the Trudeau government.

But if today’s policymakers need a blueprint for reform, they can look to the recent past. During the prolonged decline in living standards from the late-1980s to roughly 1994, governments across the country, and in particular the federal government under Liberal prime minister Jean Chretien, introduced large-scale reforms including spending reductions to balance budgets, paying down debt to reduce interest costs and create a more stable economic environment, and tax relief to incentivize investment and entrepreneurship. These reforms paved the way for nearly two decades of prosperity.

Today, the severity of Canada’s economic decline demands a similar approach. Governments must reform or eliminate low-priority and poorly-performing programs to help balance their budgets, introduce meaningful tax relief aimed at improving Canadian competitiveness and incentivizing investment and entrepreneurship, and move away from picking economic winners and losers to a more neutral policy of creating the best environment for all businesses, workers and entrepreneurs. This is the recipe for widespread prosperity for Canadians and their families.