Not Quite the US, But Canada’s Fiscal Challenges Can’t Be Ignored

Without a change in course, slow growth and rising spending will leave Canadians with stagnant living standards while shifting more of today’s burden onto younger and future generations, according to a new C.D. Howe Institute Verbatim.

In “The Endgame: Time to Act on Canada’s Economic and Fiscal Challenges,” author Don Drummond warns that Canada’s weak productivity and income underperformance, overreliance on US markets, and overall domestic vulnerabilities are not being taken seriously enough. He recommends a comprehensive economic plan to re-establish fiscal stability and help create a stronger, more resilient and diverse economy.

“With weak productivity growth, an ageing population and lower immigration, Canada’s economy could grow by just 0.5 percent this year and next,” says Drummond, Fellow-in-Residence at the C.D. Howe Institute. “That means rising deficits and debt, leaving governments with less fiscal room to respond to future challenges and improve living standards.”

The report states that Canada should expect continued tensions with the United States, making it more important to address its longstanding economic and fiscal weaknesses. Canada ranked last in the G7 for growth in gross national income per person over the decade to 2023 and has experienced persistently weak productivity growth. Combined with reduced access to US markets, these challenges make it harder for Canadian firms to compete and scale internationally. Drummond finds that these pressures will be harder to address as Canada’s population ages and the economy struggles to adapt to the costs of climate change.

His recommendations include eliminating internal trade barriers and streamlining regulatory processes, while reshaping taxes and spending to reduce deficits and support growth. This could include shifting some of the tax burden from corporate and personal income toward consumption, lowering marginal tax rates, and reviewing government spending to ensure better value for money. He also calls for maintaining environmental objectives and allowing post-secondary institutions greater flexibility on tuition. As frictions with the US persist and Canada’s federal deficits climb, Drummond calls for governments to act quickly but also asks that Canadians recognize that meaningful improvements will take time.

“While many cite Canada’s lower net debt-to-GDP ratio than other G7 countries, being the least indebted country in a heavily indebted group is not a fiscal strategy. The endgame should be a stronger, more resilient, and diverse economy with stable finances,” concludes Drummond. “Now’s the time to act.”

Read the Full Report

A separate report responding to Canada’s long-standing fiscal challenges, the Institute’s 2026 Shadow Budget by Drummond, Alexandre Laurin and William B.P. Robson is set to be released this fall.

For more information, contact: Don Drummond, Fellow-in-Residence, C.D. Howe Institute; Raquel Schneider, Communications Officer, C.D. Howe Institute, 647-805 3918, rschneider@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

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