Size of Government Increasing Across Canada, Dominating Economy, Report Finds

The Peace Tower in Parliament Hill is pictured in morning light in Ottawa on March 7, 2024. The Canadian Press/Sean Kilpatrick

The government has accounted for a large share of the economy in seven out of 10 Canadian provinces since the beginning of the COVID-19 pandemic, according to a newly released study.

More than 40 percent of the economy across Canada in 2022 was represented by government growth, a Fraser Institute report found.

“It’s important to understand just how much governments across Canada have grown in recent years, and what impact that might have on our economy moving forward,” said Fraser Institute director of fiscal policy Jake Fuss in a press release.

When government size grows too large, it can have negative economic effects by crowding out private sector investment.

The size of government in relation to the economy hit a high of 63 percent in Nova Scotia while Prince Edward Island sat at 58.3 percent, followed by New Brunswick at 57.6 percent. The three provinces are the only jurisdictions in the country where government spending accounted for more than half the size of the economy.

It’s a different story out west, however. Government spending as a share of the economy was lowest in Alberta at 26.8 percent, followed by Saskatchewan at 32.8 percent, and British Columbia at 35.6 percent.

Government spending is measured by calculating total consolidated government spending as a share of the country’s gross domestic product, the report noted.

To truly measure the impact of government size on Canada’s economy, the report looked at trends over a 15-year span—from 2007 to 2022. It found the combined size of the federal, provincial, and municipal governments grew in every province except Prince Edward Island and Saskatchewan during that time.

“The size of government increased in eight of 10 provinces and the country as a whole over the last decade-and-a-half,” said Fraser Institute associate director Alex Whalen.

“Provinces in the Maritimes tended to have larger governments relative to the economy, which employed a higher share of total workers, than provinces in western Canada. However, the size of government in general has been increasing across the country.”

Public-sector employees represented 21.2 percent of total employment for all of Canada.

Government spending remained “relatively stable” between 2007 and 2022 despite prominent fluctuations during the pandemic, the report authors said. The largest proportional increase during the 15-year period was for pandemic transfer payments, while the largest decrease was for interest costs on government debt.