Canada’s high level of economic freedom at risk

Economic freedom, the ability of individuals and families to make their own economic decisions free of interference from overly ambitious government or crony capitalists—is a core “Canadian value.”

Canada ranks fifth in the world in this year’s economic freedom rankings and has ranked in the top 10 since 1970, when the first measurements became possible.
Why is this important?

Because economic freedom promotes growth, prosperity and other positive outcomes such as higher levels of tolerance and democracy—try to think of a prosperous economy (not based on oil wealth) or a stable democracy in a country without free markets. And economic freedom helped Canada rise quickly out of the financial crisis of 2008.

However, recent policy developments at the federal level, and in Ontario and Alberta, likely threaten Canada’s high level of economic freedom.

The federal government’s March budget projected that federal spending is growing quickly. In fact, between 2014/15 and 2017/18, spending is projected to increase by approximately 20 per cent. That’s much faster than the expected rate of economic growth. That means more economic decisions made by politicians and public servants, and fewer freely made by consumers and businesses in private transactions.

Government spending has also been on the rise in Ontario for some time, with implications for economic freedom in that province. From 2003/04 to 2015/16, provincial program spending grew at an average annual rate of 4.7 per cent. Compare that to the average annual rate of economic growth—3.2 per cent.  

In Alberta economic freedom is on the most rapid retreat. In addition to spending increases implemented by successive provincial governments, Alberta has dramatically increased the tax burden on residents and businesses over the past 18 months, taking money and economic decision-making power out of the private economy. The general corporate tax rate has increased by 20 per cent, and the top personal marginal income tax rate has gone up by 50 per cent. These increases come on top of a suite of other tax hikes (including excise taxes) and the planned increase to the province’s carbon tax.

These policies threaten economic freedom in Canada and the future prosperity of Canadians.