Saturday, September 23, 2023

Trudeau government has pushed federal spending to the highest level in Canadian history

The question ultimately comes down to what share of resources are best kept by workers, entrepreneurs and businesses that create them, versus the share of resources the government should extract to spend on the priorities it deems important. Two common measures are used to calculate the size of government: spending as a share of the economy and per-person spending (adjusted for inflation). First, let’s review spending as a share of the economy. According to the IMF’s Fiscal Monitor, Canada’s spending (including all levels of government) as a share of the economy is a little more than 40 per cent (without accounting for regulations, which would increase the size of government further).

A mounting body of research suggests this level of government spending is well above the level linked with maximizing economic growth and social well-being. Indeed, the evidence indicates that the optimal size of government for economic growth — including federal, provincial and local — is between 26 per cent and 30 per cent of GDP; beyond this level economic growth rates begin to decline. When the share of spending exceeds 35 per cent of GDP, not only is economic growth impaired but improvement in social well-being indicators such as life expectancy and educational attainment are generally limited.

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