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Aaron Wudrick: It’s time for a grown-up conversation on immigration

Commentary

Canada has been shaped by large-scale immigration. With the exception of Indigenous Peoples, the vast majority of Canadians today are either immigrants or descendants thereof. Our nation has thrived as a pluralistic and multiethnic society, built through the gradual integration of people from around the world. 

While this is largely a good news story it should not obscure a hard truth: in the 21st century, the challenges associated with immigration are vastly different from those of 50 or 100 years ago, and until recently policymakers have been unwilling to discuss immigration policy accordingly. These challenges can be broadly categorized into three areas: economic impact; infrastructure capacity; and cultural friction.

When it comes to economic impact, immigration has historically, on balance, been beneficial to Canada’s economy and standard of living. But in recent years the evidence has become more mixed. In particular, the sheer number of new arrivals—over one million in 2022 alone—especially in the form of temporary and lower-skilled migrants, is increasingly being used as a substitute for Canadian labour, driving down wages. This downward pressure, while good news for employers trying to contain costs, has the dual effect of dragging down per-capita GDP, while disincentivizing business investment in labour-productivity-enhancing innovations. 

The cause of the jump in total migrants per year is also no secret: there has been an explosion in the number of international postsecondary students studying in Canada over the last decade—jumping from 248,000 in 2012 to 807,000 in 2022—largely as a result of postsecondary institutions seeking a more lucrative income stream since they are able to charge international students much higher fees. With no annual cap on foreign student visas, this has effectively become a massive back-door entry loophole to get into the country. Many of these students arrive with the hope of becoming permanent residents, which also entitles them to sponsor family members to come to Canada, further boosting migration levels.

Equally concerning has been the effect of this population growth on housing prices, which is a straightforward arithmetic function of supply and demand. Canada has some of the most expensive housing in the world, overwhelmingly a result of insufficient housing supply, especially in major cities. High levels of immigration, also concentrated in these cities, exacerbate the problem from the demand side. Both Canadians and newcomers suffer if they cannot afford a place to live. Similarly, many Canadians are unable to find a family doctor and face crowded schools, transit, hospitals, or other crumbling infrastructure. Rapid population growth makes these challenges harder to manage.

But, while concerns about immigration’s impact on our economy and infrastructure have slowly begun to attract more attention and public discussion, the issue of cultural friction remains largely taboo.

It should be said that historically, Canada has been fairly successful at integrating people from diverse religious, linguistic, and racial backgrounds, and even today there is a strong case that Canada manages these challenges better than most other countries. What was once a fairly organic process that allowed for integration over years, if not generations, has been supplanted by activist government policy that preaches an official doctrine of big-M Multiculturalism, which fetishizes and subsidizes cultural differences while simultaneously erasing and downplaying Canadian history. In effect, the implicit social contract between Canada and newcomers has become unbalanced. Canada is and should remain a place where newcomers are free to retain their religion, language, and culture. But we must also actively invite all Canadians, new and old, to join a shared national project to ensure we are working towards living together rather than simply side by side.

In addition to counterproductive government policies, few have noted that the integration process has been dramatically changed by technological advance which now allows for immigrants to retain permanent, real-time cultural ties to their native countries. This phenomenon—where people can be physically present in one place but maintain daily cultural and social ties to their homeland—presents a special challenge to a country with a relatively weak national identity. This is particularly true of Canada’s large diaspora communities, including those from China, India, and Iran, which have increasingly impacted Canada’s international relationships and given rise to interference (alleged or proven) by these countries on Canadian soil.

Canada has historically enjoyed strong support for immigration across the political spectrum, a consensus that is not common in other countries. Recent opinion polling suggests that this consensus is rapidly eroding, if not already gone. We are long overdue for an honest, constructive, and robust debate about the way forward on immigration. We owe it to Canadians—both present and future.

Robert Asselin and Theo Argitis: Don’t buy the government’s rosy projections—Canada’s fiscal outlook is not a pretty picture

Commentary

After a challenging 2023, Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland head into the new year facing significant pressure to test further the reach of the federal government’s balance sheet.

Just to stay in power, the federal government will likely need to launch a multi-billion pharmacare plan to fulfill a promise that it made to the New Democratic Party. A federal election, whenever it comes, will only stoke demands for additional spending. Adding to the pressure are structural challenges around aging, industrial policy, defence, Indigenous reconciliation, and the energy transition.

As a result, the next 12 to 18 months will see heightened debate over the state of the nation’s finances, as well as the amount of fiscal space that remains available and how best to use it.

We believe the federal government should resist any temptation to add to the fiscal framework at a time when debt has ballooned, interest rates have increased, and growth has slowed. Others will take a more sanguine view. Political actors will work hard to frame the discussion strategically to rally the public around their positions.

To help inform the coming debate, we offer a few observations that we think are worth highlighting.

Net debt

Let’s start with a reminder that there are a number of ways to measure debt and sustainability. Under the government’s preferred gauge—net debt—Canada’s fiscal position looks much better than most major economies—a fact that the current government has raised repeatedly to justify its spending.

But it has limitations.

Net debt is a narrow measure that deducts state financial assets from actual debt liabilities. In Canada’s case, this includes the fast-growing assets held by the Canada Pension Plan and the Quebec Pension Plan. The fundamental idea is that it’s the best way to assess longer-term solvency since, in theory, the government can tap into these financial assets to repay its debt if needed.

The concept is somewhat notional, however, since it’s tough to see any government raiding the nation’s pension assets even in a crisis.

Net debt also is less useful in analyzing the actual trade-offs that governments are forced to make in real-time. The burden of debt repayments is what actually matters for budget making, and borrowing costs can overwhelm a country’s finances and undermine growth well before any risk of a default eventually kicks in.

Gross debt measures and actual debt servicing indicators give a more accurate picture of the fundamental constraints faced by fiscal planners. And these indicators offer much less comforting international comparisons.

Discount the trajectory

When looking at Canada’s fiscal picture, we suggest discounting the government’s medium-term projections, which always show improving debt dynamics and a downward deficit trajectory that approaches balance and then fails to materialize.

In her November fiscal update, Minister Freeland even pledged to establish a “rule” in 2026 to prevent the deficit from ever again exceeding 1 percent of GDP—which we don’t find credible based on, among other factors, the Bill Parcells’ rule.

To project where the Trudeau government’s deficits will be in the future, take guidance from former New York Giants coach Bill Parcells, who famously said that you are what your record says you are.

Between 2017 and 2022, the Trudeau government ran deficits averaging 1.4 percent of GDP when adjusted for swings in economic activity—which not coincidentally is about the deficit projection for 2023 and 2024. That’s our best base-case assumption going forward under a moderate growth and interest rate scenario.

Spending matters

Current spending is not consistent with any meaningful reduction in deficit levels. Expenditures as a share of GDP—at 17.8 percent over the next two years—are structurally the highest levels since the 1990s.

In the post-World War II era, the federal government has managed to record a deficit of less than 1 percent of GDP only twice when spending exceeded the 17 percent threshold. That was between 1996 and 1998 at the very start of a decade-long period of fiscal consolidation.

In fact, history tells us risks are asymmetrical and tilted to the upside at these spending levels. Since the end of WWII, deficits have averaged more than 4 percent in years when spending has surpassed 18 percent of GDP.

This is an intuitive outcome. There are more constraints to raising revenue than there are to increasing spending.

Spending and deficits at current levels over a sustained period of time aren’t necessarily unstable as long as economic growth is robust, but that’s not a luxury we currently have with our abysmal productivity numbers and population aging.

Today, the bigger risk may be that we enter into an era where public debt charges outpace revenue growth—a dangerous inflection for debt dynamics.