OPINION: Canada is slipping in terms of economic freedom

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By: Niels Veldhuis and Fred McMahon

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Canada, after decades as one of the 10 most economically free places in the world, has fallen into its teens for two years in a row, according to the just-released 2021 World Economic Freedom Report, raising concerns about a long term trend away. of freedom.

Canada fell to 14e in the new report based on 2019 data, the most recent available, down slightly from 13e Last year. In all previous years, going back to the first measurement in 1970, Canada was in the top 10. As recently as 2014, Canada was ranked 6e. It is deeply important. Numerous evidence-based studies show that economic freedom promotes growth, prosperity and poverty reduction.

And it is likely to get worse. The two main parties in the last election pledged to increase spending as a percentage of GDP, even as COVID-19 hopefully recedes. Big spending reduces economic freedom by limiting space for free trade and increasing economic control of government. Soaring debts and deficits can be a harbinger of worse developments, as some governments will be tempted to raise taxes rather than cut spending to bring deficits under control.

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To see the way forward, we need to know where we are now. A recent Fraser Institute study shows that Canada was the 2nd biggest spender among advanced countries in 2020; had the highest deficit-to-GDP ratio; and the 25th worst economic performance.

The The International Monetary Fund (IMF) has produced comprehensive budget projections, which are scary and show huge increases in government spending, deficits and debt around the world and for Canada.

In 2019, government spending in Canada represented 41% of the economy, reaching 52% in 2020 and falling to 48% in 2021, compared to an average of 39% for advanced economies in 2019, 47% in 2020 and 46% in 2021.

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And the Government of Canada has been growing for years, as measured by the size of the government of economic freedom in the world. In 2014, Canada was 68 years olde out of 165 jurisdictions increasing to 112e in 2019, the lower ranks indicate more government.

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The debt burden is also a big problem for Canada. Net public debt will drop from 88% of the economy in 2019 to 116% in 2021. And Canada already has significantly higher debt than the average for advanced countries, which was 94% in 2021.

IMF projections show fiscal improvements across the board as COVID-19 recedes, but there is a danger there. As government spending increases, Canada and the world may be headed for a long-term collapse in economic freedom and therefore economic growth and prosperity.

For example, the income of the poorest 10% in the freest nations is over US $ 14,000 but less than US $ 1,600 in the least free nations. In the least free nations, more than one in three people live in extreme poverty ($ 1.90 per day) compared to less than 1% in the most free nations.

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The list goes on: Economically free nations have increased life expectancy, better health care, more academic achievement, and higher levels of happiness. Research has shown that happiness is driven even more by economic freedom than by the increased prosperity it generates. People just like to be in control of their life.

Restoring economic freedom is vital for future growth, prosperity and other good things. Neither party in the recent election spoke about economic freedom or its diminishing role in the Canadian economy. For a better future, Canada must end the long-term decline in the economic freedom of Canadians, which was evident long before COVID-19.

Niels Veldhuis is President of the Fraser Institute and Fred McMahon is Resident Fellow.

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