Is Government Policy Making You Poorer?

And who can we blame?

I’m sure that by this point, most of you have read about Canada’s dismal per capita gross domestic product (GDP) - especially in comparison with what’s happening in the U.S. Just to get all of us up to steam, the Canadian version of that key economic measure has been largely stagnant over the past decade, while things have been firing on all cylinders down south.

What’s driving our dismal performance? We can’t blame the whole thing on governments, but policy certainly plays an oversized role. The unsustainable rate of population growth, for example, has been entirely the product of federal government choices. This, in turn, has contributed to severe housing market constraints.

Labour productivity in Canada has been weak for years - far lower than in the U.S. - and is headed in the wrong direction. Overly complex regulations and slow permitting take some of the blame for poor investment numbers. Programs like the Canada Innovation Corporation and R&D tax credits exist, but haven’t made much of a difference. The OECD cites Canada’s low public and private R&D spending (1.7% of GDP vs. 2.7% in the U.S.) as a barrier. And government policies have also so far failed to address interprovincial trade barriers, reducing efficiency.

Weak technology adoption, regulatory hurdles, and sub-standard intellectual property protections - along with a hyper-politicized higher education culture - have, no doubt, both driven out smart Canadians and convinced talented foreigners that we’re not worth the risk.

So I don’t think I’m breaking any new ground by concluding that at least half of our GDP woes are results of public policy decisions.

But GDP isn’t the only measure of economic health. GDP, after all, is just a proxy for economic well-being. For some purposes, a better measure is purchasing power. That is, how much can we afford to buy with the money we actually have. For that, some version of the OECD purchasing power parities index can be useful.

This first table compares the OECD’s household final consumption expenditure for Canada to U.S. numbers. By way of explanation, in 2024 - relative to OECD prices - it took 1.44 Canadian dollars to purchase what 1 USD could buy in terms of household consumption. The disparity hasn’t changed all that much over the five years for which we have data:

Another way of saying that is that Canadians pay about 20–30 percent more than Americans to maintain the same standard of living even after adjusting for prices.

The next table represents actual collective consumption, which is a measure of the true costs of government-provided goods and services, such as public education, public health, and police. Once again, a higher value means lower purchasing power of that country’s currency.

And once again, Canadians have to pay considerably more for otherwise equivalent services. Those numbers are unaffected by the public vs private healthcare differences: we’re only looking at the costs of those services that do come from governments.

Is it government policies that drive our purchasing power deficit? Well, it's certainly reasonable to say that zoning and land use laws restrict housing supply and lead to higher prices, as do higher consumption taxes (HST/GST). Similarly, interprovincial trade barriers inflate domestic distribution costs, foreign ownership restrictions for the telecom and airline industries reduce competitive pressure, and regulated costs for electricity, mobile phone, and internet services are significantly higher (due largely to limited competition and provincial monopolies). Add to that, Canada's protected industries (like dairy and poultry under supply management) which artificially inflate food prices.

So, yes. Government fingerprints can be found all over our weak purchasing power relative to our neighbours in the U.S.

The question is whether there any trade-off benefits we get as Canadians that compensate for our poor economic health. In other words, is this the governance that Canadians actually want?