Canada no longer among top 10 most economically free countries

Photo courtesy of Canada 2020

In a global ranking of 159 countries and territories, Canada has fallen from the top 10 countries in economic freedom for the first time ever—and things are getting worse.

Economic freedom is the ability of individuals and families to make their own economic decisions free of government interference—what to buy, whether to start a business, where to work, whom to hire, and so on. Research from around the world has demonstrated that more economic freedom spurs economic growth and prosperity, along with a number of other positive outcomes such as women’s progress, democracy and peace.

Some quick history. Pierre Trudeau became prime minister in 1968. And the first measurement of economic freedom took place in 1970—Canada was third in the world (with a score of 8.0 out of 10 on the economic freedom index). During the Trudeau years, economic freedom in Canada declined, then rose in the 1980s and was above 8.0 most years from 1990 onward, particularly after the “Chretien Consensus”—the effort by Ottawa and several provinces to get spending, deficits and debt under control and introduce more competitive economic policies.

Subsequently, Canada surpassed the United States in economic freedom in 2009 and remained ahead until now when, according to the 2017 Economic Freedom of the World Report released last week, we’re tied with the U.S. at 11th (with a score of 7.9 out of 10).

But crucially, the latest rankings are based on 2015 data (the earliest available global data), collected before the Canadian policy landscape changed dramatically.

We now see deficit-spending by Prime Minister Justin Trudeau’s government—in fact, federal spending has grown from just over $5,500 per Canadian (in 2017 dollars) in the mid-1990s to more than $8,300 in the 2017 budget. Federal debt has reached 53 per cent of GDP and growing (up from 39 per cent in 2007). And higher federal taxes include a “carbon floor” that essentially forces provinces to enact costly carbon-pricing schemes.

Among the provinces, Ontario is deeply in debt. Alberta has increased taxes and is running budget deficits. British Columbia is raising taxes. The top marginal personal income tax rate is now above 50 per cent in half the provinces. And unless governments across Canada control spending, more and more tax dollars will pay for government debt interest, which raises the spectre of more tax hikes.

The increased taxes and spending across Canada since 2015 have reduced the space for free exchange and thus reduced economic freedom. In future years, Canada’s level of economic freedom will likely fall further.

Given the link between economic freedom and prosperity that has been clearly established by economic research, a drop in economic freedom will have negative long-term effects on the living standards and economic opportunities for Canadians and their families.

Canada sat near the top of global economic freedom rankings for years. But according to the latest data on economic freedom, Canada has fallen from the top 10 for the first time in our history. Again, developments in Ottawa and across the country since 2015 suggest even deeper declines in the years ahead, which will reduce the freedom and prosperity of Canadians and damage our economy.