Nuanced. - 250. Trevor Tombe: Are Canadians Getting Poorer? Economist Explains

Episode Date: July 13, 2026

Economist Trevor Tombe explains why Canadians feel poorer, how Canada fell behind other advanced economies, and what productivity, taxes, housing, health care, Alberta, and trade mean for the country���s future with host Aaron Pete. Send us Fan MailSupport the shownuancedmedia.ca

Are Canadians getting poorer? Canada is underperforming almost every single other advanced industrial economy in the world. Prime Minister Mark Carney wouldn't answer this question. So I'm bringing this to you as an economist. Are we in a recession or a technical recession? What is going on? In terms of affordability, it sort of feels like a recession, even if technically I wouldn't characterize it as well. You've warned that Canada is entering a new economic era.

What is ending? We're now producing at about 70% of the U.S. level in terms of the size of our economy per person. That is a bigger gap between us and them than at any point since the Second World War. Are the conversations you'd like to see happening around tax reform, around productivity, are those taking place adequately from your perspective? Yeah, I'm going to say no. Is Alberta right to feel economically mistreated by Confederation? Trevor Toome, thank you very much for joining us today.

I am very excited to have you on. Would you mind first introducing yourself to listeners? Sure. Well, first, thank you for having me on. It's really great to be here. So I'm Trevor Toome. I'm an economics professor at the University of Calgary, both in the Department of Economics here and at the School of Public Policy. Are Canadians getting poorer?

So it does depend on how you measure it, but many key metrics that kind of summarize the average experience of Canadians today has been declining over the past several years. If you look, say over the past 10 years, from the very beginning of 2015 through until the latest data that we have across countries, which is the end of 2025, Canada did grow in terms of the amount of of income per person, adjusted for inflation and all of that, but by less than 4% in total over that entire span of time, which is the slowest pace of kind of real disposable income growth that we've seen since the 1990 recession and before that to Great Depression. So it's a really difficult moment that really does, I think, explain why affordability challenges, why cost of living looms large. And this is compared to many other countries that have experienced normal rates of growth over the same span of time. Canada is underperforming almost every single other advanced

industrial economy in the world. How do we digest that information? What do you think, like when I watch the news, it feels like we use words like, well, our GDP went up. And so it's not so bad. And I hear, and I feel like Canadians feel shortchanged in some ways, because it's like, no, like my life isn't getting better. It feels like there's like an elite discussion on the academics of economics, and then there's the real lived experience. What are we disconnected on? Yeah, that's a really great question. And I'm certainly guilty of participating in an academic discussion, as you say. I use words like productivity growth quite frequently. And that does seem like a pretty abstract economic concept. So does GDP gross domestic product. Like, what does that mean concretely? Well,

If you think about people's just average income and how much it can purchase, so the purchasing power of your typical income, or even more simply, just the purchasing power of your average hourly wage, the growth of that over time tracks really closely to labor productivity or to GDP per person. So GDP is just a measure of effectively how much income in total is being generated in the economy each year. And productivity is just a measure of how much we're able to produce per hour. And so if our productivity rises, typically because of business investment, more machinery, equipment, technology, and so on, are labor is more valuable and competitive labor markets as we have in most cases in Canada, that does tend to then lead to higher wages. And so, yeah, how to best engage broader, more accessible conversations in a way that doesn't just focus on the abstract economic statistics is a really great point. But at the end of the day, productivity, GDP, average earnings, the purchasing power of disposable income, they all move together.

And so when productivity growth is slow and GDP per person is slow, stagnant, sometimes falling, that does mean, that on average wages are too. So I say average in the most respectful sense, but when your average trucker says like, hey, like my assumption is that the government goes to work to make my life better, broadly speaking. That's the, I think, a core assumption of our political system that we are supposed to be able to take for granted.

As you may know, I just interviewed the economist Mikkel in regards to his thoughts from the University of Wurts, Waterloo on his perspective, and he pointed to our immigration policy and labor economics as being focused on improving it for businesses, for Tim Hortons, for different companies who had lobbied for more immigration for low-wage jobs in order to continue the growth. And I asked him, like, when you hear that, like, I just imagine that an average Canadian is like, I thought the government work to try and make my life better. Do you think that there has been a breach in this idea that the Canadians are expecting their government to go to work for them to improve their

lives and that that deal isn't being met? It is unquestionably the case that poll after poll is showing that a very large majority of Canadians now rank affordability and cost of living challenges as the most important item. I'm thinking of a recent abacus poll. I think it was from last week that showed two-thirds of Canadians put that right at the top. And that's double the share for any other issue. You know, even things that typically receive a very high share on these polls like health care or, I guess, concerns around trading relationships with the United States. So economic matters are now the most important thing for most Canadians. That's not always the case. And I think it is important to keep in mind that, you know, whatever party one supports or policy preferences one

has, governing's hard because every choice you make creates winners and losers. There's pros and cons. There's tradeoffs always. And I think it is fair to say that in recent years, the federal government has prioritized a lot of non-economic objectives and that has naturally come at an economic cost. Now, some might think that was a cost worth paying. I think though increasingly, especially in light of uncertainties around the world, many Canadians are looking at that potential tradeoff and thinking, well, maybe it wasn't worth it. And we should reprioritize economic outcomes, the investment environment, trying to boost how much machinery, equipment technology we have, how many major projects can go ahead, how much infrastructure we have available to produce, trade and ship more, not just with the world, but even with each other from one part of the country, to, another. So I guess I wouldn't characterize it as, you know, any kind of fundamental deal having been broken, but people realizing that when you neglect economic outcomes over a sustained period of time, that can really compound and mount into pretty enormous losses

of income. That leads into a point that I've made before and I'd be interested in your take on it. I believe that during good economic times, like in 2015, Harper had balanced the budgets. I believe we had a surplus that year. And so Canadians were kind of like, hey, things are going well. And we've got this kind of old school leader that's focused on money and stuff and isn't really like the face of Canada in some exciting way. And so they were kind of like, yeah, we can focus on reconciliation. Yeah, we can focus on social issues. Yeah, we can focus on trying to be net zero and interest in the environment because the economy is in such a great place.

We could focus on those things. And when those things aren't going in the right direction, when we don't have balanced budgets, when inflation is really high, when the economy isn't doing well, people go, I can't think about reconciliation. I can't think about the environment. I need to put food in my fridge. Is that a fair analysis or am I missing something? No, I think that is entirely fair, that people's preferences will naturally change depending. on circumstances as completely normal as how we live, you know, live our lives as how businesses operate, certainly how public policy operates as well. You know, 2015 was an

interesting year. I'd say 2014 was maybe the strong economic year. Oil prices declining in 2015. That was not just a hit to Alberta. It did hit the national economy for sure. But yes, when economic growth is strong, when affordability cost of living challenges, don't loom as large, you can allocate more resources to pursuing other objectives. I mean, you know, naturally when the pie is bigger, you just have more available to direct towards all sorts of other priorities. So I think about productivity growth. Let's be concrete here. It's been slow had we kept pace with the United States over the past 10 years, which is the normal pattern that we saw for 20 years before 2015,

and the economy today would be about $600 billion larger a year. So all that goods and services that that represents could have been used to tackle other challenges. It would have meant higher government revenue. We would have had a surplus this year rather than a deficit had the economy been that much larger. And so we have more available to direct towards... other objectives, whether it's environmental or health or whatever one has in mind. And so when resource constraints bind more tightly, naturally you turn more to the fundamentals, if you will, the necessities, if you will, rather than the more what could be characterized as luxury goods,

where the demand for those things increases as income rises. So I certainly hope that strong growth returns so that we do have many more goods and services. It gives us the luxury of allocating some of those to all sorts of objectives. Did Canada confuse population growth and economic growth? Ah, well, that depends on how you define economic growth. Now, when you focus on GDP in the aggregate, that is the economy, and it can grow. And population increases can be a driver of that aggregate. GDP growth. But then if you look at how the individual within the economy might be experiencing that growth, well, then the denominator matters as well. And so that's why GDP per person is quite important to think about as well. And there you could have an increase in population and then

see a rise in GDP, but a drop in GDP per capita. And both are relevant economic metrics. And I think it's important that we have many metrics in mind when trying to evaluate whether circumstances are strong or weak. And it's not just the total size of the economy, but it is also the individual living standards within it that matter. And I think over the past couple of years, that has really been reinforced. And there has been a lot more attention paid to per capita measures, a lot more attention paid to business investment per worker, to labor productivity growth. And the need to do things differently to try and boost investment, boost GDP per capita, boost labor productivity is more broadly accepted today than at any point I can remember. And so it has been a

difficult several years, but that has reinforced the importance of focusing more on these other metrics. rather than just the total size of the economy itself. What do you think the biggest policy failure over the last 20 years have been that have hurt our economy the most? So good question. If I were to point to, I guess it shouldn't be up to me to characterize something as a policy failure or not. I certainly have my preferences, and I'll share, I guess, my personal take here, but reasonable people can disagree over whether they think a policy is worthwhile,

or not. I think that part of the challenge in Canada in terms of increasing investment, labor demand, productivity and growth, has been neglecting the area of our economy where we've had a natural advantage for a since the beginning, and that's natural resources. And these are really difficult to extract and perhaps even more difficult to ship and export out. It requires a great deal more infrastructure than we've had. We need bigger ports. We need more rail capacity. We need more pipeline capacity when we're talking about oil production. And there has been barriers to the construction of those broad infrastructure projects, sometimes outright bans of them by not approving pipeline projects, for example, or not allowing for the shipment of Canadian oil

out from the BC coast, for example. And so I think that has been a potentially very significant drag on investment and therefore economic growth because you just physically can't produce more if you can't export the goods out. And that means foregone income. That has come at the cost of living standards for many Canadians, not just in resource-producing regions either. So I think that one, that one is quite large. But I should be honest that some people would say, well, that's a cost worth paying to achieve some non-economic objective. And I think

that's a fair enough conversation to have. But we should eyes wide open recognize the economic costs involved in not undertaking major projects or infrastructure or trying to expand areas of our economy where we have an advantage. So I think that's a big one. Second, taxes. And maybe I'll return to taxes throughout this conversation. It affects incentives to invest in a really big way. And we haven't exactly changed taxes all that much. We did increase the top marginal personal income tax rate from 29 to 33 10 years ago. And that, you know, that is a disincentive for higher skilled individuals, typically earning more. income. It's a disincentive to entrepreneurship and so on. But I think our failure on the tax

front has been in not trying to improve and make more competitive our tax system, despite large-scale changes in the United States that have dramatically lowered at the overall tax rate and tax burden there. So that I see more as like a missed opportunity, an opportunity that is still there. And we can dramatically improve our tax system to boost investment incentives, boost growth. We just haven't yet. And so, again, reasonable people will differ on whether that's something we should do or not. But personally, I think that's been a big failure. On that note, and I just interviewed Pierre Palliev, the leader of the official opposition, he talked about a process where Canadians could defer their taxes if they reinvest in Canada.

I'm sure you've heard that comment. I might not be getting the perfect framing of that correct. What are your thoughts on that proposal by the leader of the opposition? Yeah, so it's an interesting one that's kind of tied into a broader objective that I think tax policy and business tax policy ought to consider in a large-scale reform in Canada. And that's not taxing investment. You know, right now, a dollar invested in the construction. sector, for example, faces effectively a tax rate of about 20% on that marginal dollar. And that lowers the incentive to invest in the first place, which lowers the amount of capital

that we have, which lowers economic growth, productivity, lowers wages. Or I should say lowers wage growth. And there's different ways that you can lower taxes on investment. You could just outright lower the tax rate as one example. You could allow companies to write off the full amount of any spending they make on capital equipment. You could tax only distributed profits. This is a proposal from my University of Calgary colleague Jack Mince here, who's recently written on this as a kind of a big bang tax reform. And then what Mr. Pelliev suggests is not taxing anything that's kind of reinvesting.

That's another way of doing the same thing. profits are generated, which are normally taxed at a particular rate, 15% federally, and then it varies by province. But if you take that and invest, then you should not be paying taxes on it. And that's effectively lowering the tax on investment. So there's probably like some optimal mix. And what I think government ought to do is very quickly strike up an expert panel or commission or something, as we did in the 90s, actually chaired by Jack Mintz. in the 1990s, to work out all those details and work them out fast so that they can be implemented in the next budget. Because for some sectors, that reinvestment might be very important.

For other sectors, there might be other structures that would be more beneficial. And so I think there's some complexity there to work out. But absolutely, a large scale business tax reform is something that could boost investment incentives. This leads into another question that I have. And I find, it often gets oversimplified, so I just want to lay it out. On the one hand, I've interviewed individuals in B.C. like Trevor Helford, who's a conservative MLA, and he goes, leave the business people to do their thing. We don't want to discourage people from being entrepreneurs and growing businesses and growing companies and contributing to the economy. Then I spoke to Emily Lohen,

who's the party leader for the B.C. Greens, and she's, I think, a fan of Zoran Mundami and others who are talking about tax the billionaires and address their wealth. I just listened to an interview with billionaire investor in the U.S., Jeremy Grantham, who is on diary of a CEO, and he is a billionaire. And he says in the, I think it was the 70s and 80s, there was a steeper curve towards billionaires' taxation and how much they needed to contribute. And we moved away from that.

And now, to me, the framing of this conversation is often, And either you hate Elon Musk for being a trillionaire or you are pro unlimited amount of wealth. And no matter how rich somebody is, that's a good thing. And I feel somewhat caught in the middle because I'm like, I believe that there are a certain amount of people who are in the bottom 10% who need social assistance, who need support, who have disabilities, who need a certain amount of support. and billionaires and trillionaires are not going to notice a modest increase in their taxation. But then I feel like I'm being put in the communist like bracket of society for thinking that that wouldn't be the worst thing in the world.

I don't think it fixes all of our problems. And I think where I sort of land is if we can go to these very wealthy, ultra wealthy people and say, hey, if you're willing to pay more, we're willing to fix some of the systems that exist the result in money being so wasted. And I think that would be good for all Canadians, like just less waste. I think we're spending, we don't have a spending problem.

We're spending plenty of money on things. It's whether or not those services are actually being delivered in a high quality. How do you think we should think about taxing billionaires? Yeah, that's a great question. And I think we ought to resist the temptation to sometimes view policy just through a black and white lens. You know, we should always recognize that policy. choices have tradeoffs. And we should be honest about those.

And so often, you know, that doesn't boil down to a soundbite, tax the billionaires or whatever the slogan may be. But that's how we get better policy by thinking about tradeoffs. So when I think about the appropriate tax system for very high income individuals, I naturally think about the revenue implications for government. you know, that's often the underlying motivation, raise some revenue to do something with that revenue. And in Canada at least, at the very high end, depending on the province you're in, a little over 50% of each dollar earned is taxed through the personal income tax system.

And if we were to increase rates further, there's some really strong empirical estimates that suggest that revenue wouldn't really rise all that much, if at all. Because as you tax something more, you get less of it. That's true on almost everything. And so what matters is how sensitive the thing we're taxing, like the income of high income individuals, how sensitive is that to taxes? And people can move. What is generated, you know, in which country, where it's taxed, That's something where there's flexibility, especially at the high end. And so it's perhaps not a way to meaningfully increase government revenue. I think that is certainly the case for provinces, where it's much easier to shift income around

within a country than between countries. But even internationally, it's not all that difficult. And so we should just be aware that it might feel as though it's something we should do, but if it's not actually generating revenue, which is the objective, I think, for many who might be calling for higher taxes on high income individuals, you know,

we should be thinking about other tools to increase matter resources available to government to pursue other matters. So I guess that's point, point one. Point two is we should also keep in mind that it matters how

wealth was accumulated by different individuals. It's very different. when someone is enriched through special benefits they received from the state. You know, maybe they have some special monopoly privilege that allows them to earn, you know, like non-market returns charging so much more than their costs, and they can do that because there is the state protecting their area of activity. That's very different than someone who innovates. invent something new or comes up an entirely new way of doing something that improves lives and earns

revenue from that. So I don't fault at all the Steve Jobs of the world. And indeed, even Elon Musk. I mean, he's kind of a more of a polarizing figure today because he crosses in and out of politics. But as an entrepreneur, he has revolutionized our ability to launch satellites into orbit. He has made possible effectively affordable high-speed internet anywhere on Earth through Starlink. The electric vehicle penetration, you know, through Tesla. I mean, him as an innovator, he has earned much of his wealth through innovation. And I view that very differently than other billionaires who might have their wealth because of a consequence of special favors from the government. And in Canada, luckily, we don't have a lot of

examples like that, but in many countries, that is indeed how enormous wealth can be accused. My other question on tax, because you brought it up, and I find it so interesting, I've pitched this idea before, and it might be crazy, and you might tell me that it's crazy, but I feel like Canadians would have a different relationship with their involvement of the country, their involvement in democracy, if they were forced to save up their money up until the end of the year and pay their taxes in a lump sum

rather than having it deducted as a consequence because there's almost like you didn't even feel it and great investor, like great people who talk about wealth like Dave Ramsey always go pay yourself first because you don't even notice it once it's already removed out of your account. And I somewhat think of that for taxes that Canadians are obviously,

bit, in my opinion, docile because they're like, I didn't have the money to begin with. So I don't have that strong connection. What are your thoughts on that? Yeah, this connects with the concept of tax salience. You know, effectively, how easy is it for you to think about and experience the taxes that you pay? And some of them are very much not top of mind and you barely think about them while others you think about a lot. And this is behind a lot of the strong. And this is behind a lot of the strong feelings around why some taxes are not popular and others people don't really care about it all. So the GST, that, you know, broad-based consumption tax, one of the least popular taxes in Canada, dare I say. You know, when it was passed, there were protesters up in the

gallery in the House of Commons throwing rolls of toilet paper down, like the old clips you can see the toilet paper going past the cameras, not very popular. And to this day, the GSTAY, the GST is something that most people don't like all that much. And part of it is because they see it every time they buy something. It's right there at the bottom. It's a disconnect between the price of the thing on the shelf and the price that you pay at the checkout. But then you think about personal income taxes, which are paid sort of in the background. And unless you're looking at your pay stub every time, you know, carefully and, you know,

carefully and even then the deduction might not be labeled in a very clear way. You know, you might not even know how much income taxes you're paying, even if it is much larger than how much GST you're paying. It's just harder to know. Property taxes too, not very popular. Because depending on, you know, what city you live in and what the structure is, you do pay it once a year, or you pay it months to month, but it's much more visible. And interestingly, most people, or I don't know about most, many people could probably tell you to the dollar what their property tax is, but couldn't tell you to the nearest thousand dollars what their personal income tax is. And I think your right to note that, that, I wouldn't use the word like

docile, but that you can have some taxes kind of paid in a way that doesn't lead to the same kind of realization among, you know, at the level of the individual because it's hidden. I'll end with corporate income taxes. Most people don't think they pay that at all. Obviously, if you're a small business owner, you know that you pay it. But as an individual is just a worker, you might think that it is a tax paid by someone else, not realizing that it it does have implications for individuals. It does lower wages because it lowers investment, which lowers labor demand, which lowers wages. And so workers pay the corporate income tax, too. It's just a very indirect channel. It's hard to see. And so I think the more that we can make

taxes visible, the more salient they are, then absolutely the greater awareness Canadians would have for the cost of government. And then maybe there might be greater pressure to ensure our government is as efficient as it could be. You know, I'm not sure, but it would certainly, I think, changed the conversation. And this might have been a motivation for why we see the GST. You know, that's a policy choice. We could have embedded it in the price, like in Europe. The government chose not to do that.

And it might have been because there was a desire to ensure that Canadians were aware of it. and keep the government accountable, making it visible. Prime Minister Mark Carney wouldn't answer this question. So I'm bringing this to you as an economist. Are we in a recession or a technical recession? What is going on? So I don't think we're in a recession. And this is a hill I will die on.

In 2015, we had two quarters of negative growth. And that was not a recession. Looking back, you know, And the broad consensus is that that was not a recession. The United States had a recession following the dot-com bubble bursting, but there was not two quarters of negative growth. So two quarters of negative growth, you know, it's easy for headlines, but it does not define a recession.

A recession is a broad and persistent contraction in economic activity. And it's often hard to tell in real time whether you're in one or not. But that second consecutive quarter of growth that we just got a few weeks ago from statistics Canada was pretty narrow. And it looks like all of the current month-to-month indicators are suggesting that it will not be repeated. And this upcoming, or the Q2 growth in Canada, is looking to be quite strong. And so when we look back on the data, you know, we will be trying to determine whether or not there was a broad persistent contraction in economic activity and two quarters just being negative, that's insufficient. You know, there won't be like a definitive answer until long after the fact.

But at the moment, no, I think it's too soon to say that we're in a recession. But that does not mean that things are going well. The unemployment rate has been rising pretty consistently for the past, I guess, two years nationally and in many provinces. And so many Canadians will be experiencing the economy as if it were a recession, certainly if you're among those who have job losses. I noted that the pace of income growth, like the purchasing power of our income, how quickly that's grown, is slower than any point in the past century. in Canada, with the exception only of the Great Depression and the 1990s recession. So in terms of affordability, it sort of feels like a recession, even if technically I wouldn't characterize it as one.

So I think, you know, focusing on the R word is perhaps not where we should be focusing our attention. The economy can be underperforming. It can be pretty disappointing. it can be straining individuals and households and still not be a, what we would call a recession, according to our normal definition. Mark Carney is an economist. You're an economist. He's been prime minister now for over a year. I think Pierre Pollyev is trying to hold him accountable as an economist and saying like, hey, your economy isn't performing that well. Like, you're the economist guy. You're the one with the credentials. How would you grade Mark Carney's performance over the course of, of this year?

That's a tough question. I would never presume to grade a government's performance, certainly not at a time where it's fairly difficult. A lot of people have strong opinions about politicians of all parties. And fair enough, of course. I think it's great that people are engaged and fighting for what they'd like to see in the country in terms of direction, absolutely. But often it is really hard in real time.

to know whether or not a particular choice made by a government is yielding success or not. I think looking back, for example, on the tenure of Paul Martin and John Critchin in the 1990s, like it is easy now to look back and see the fiscal choices made in 95 and the completely different trajectory that that sent the country on and look back quite favorably on. But in real time at the moment, you know, when that budget is coming down, It was not so clear. Or free trade, Mulroney. You know, he had a really difficult time politically with free trade, with the GST.

Now, in retrospect, looking back, those were good decisions, I think, for the country, for the country's economy. And for all sorts of reasons, we don't need to go down. It's increasingly clear looking back on the period under Prime Minister Trudeau, that there were a lot of decisions taken that We're not prioritizing investment incentives, growth, economic outcomes in the country. And right now it's only been a year and a half for Mark Carney. So I think time will tell. Or that's the perspective that I tend to take. I also think that it doesn't really matter what the credentials are of a prime minister or a political leader.

You know, the fact that the prime minister is an economist, you know, I'm an economist too. I got nothing against anyone who is an economist, but it doesn't really matter. What your background is, what matters is the vision for the country. What matters is the policies you want to prioritize. What matters is you knowing where you want to go.

And there's expertise within the public service. And there's expertise that could be relied on outside of government as well to actually do the technical stuff, you know, crunching the numbers. that can be done by others. And so political leaders, you know, what matters most is their vision

and their understanding and their connection to the experience of Canadians broadly. And so many, and I think this is maybe worth noting that Pierre Pollyev has been a politician for,

I believe it's fair to say, all, or at least most, of his adult life. And some view that as a negative, and I don't tend to view it as a negative at all. I mean, politics is, it's an occupation like anything else. There's some skill involved in doing it well. And, you know, the fact that he doesn't have a PhD in economics shouldn't have any kind of negative implication

for how people view him in the same way that I think Mark Carney having one in economics shouldn't be viewed as a plus either. I think we should just view them on, you know, what their vision is, how well they're responding to the moment and kind of long after the fact, looking back to evaluate whether or not particular policy choices improve the country or not. Okay, Trevor. Let me reframe the question a little bit then. I guess I dodged that one. No, it was very well said.

And I do think it's fair enough to not know exactly how some of these things are going to play out. And to not show political allegiances or anything like that in the work that you do in the profession and the approach that you take. I think that's all fair. But I guess I would ask, as a follow-up, are the conversations you'd like to see happening around tax reform, around productivity, are those taking place adequately from your perspective? Yeah. I'm going to say no. Now, it is refreshing that a lot of economic objectives are being focused on, at least in the conversations and some of the communications of the communications of the government.

It's quite clear that they are emphasizing the importance of major projects, improving resource sector activity, in the budget recognizing the scale of the productivity and the investment challenge. Like that was refreshing to see in November the budget being very open about the economic challenges we face, which is kind of rare for a government to do because in part there's some responsibility there that governments take for the state of the economy. So that was refreshing to see. But there hasn't been a lot of significant moves in areas that I would have thought would have happened. And I'll give a couple examples, one on taxes, because you asked explicitly about taxes. The Liberal Party in the campaign last year included within their platform a commitment to review and overhaul the business income tax system to ensure it's competitive.

And I think that was very welcome to see, but it hasn't been done. It was not a part of the budget. There seems to be no indication that they'll be pursuing that anytime soon. So they campaigned on it. And it would be valuable to have, to do a major overhaul of the tax system, which we haven't done in a long, long time. And it is due. And they haven't done it.

And so that's disappointing. Second is a lot of the regulatory changes have also been either non-existent or fairly slow. And I tend to view things like the major projects office as a way to achieve a short-term objective of boosting investment by circumventing existing regulations. But because you're circumventing existing regulations, you're implicitly revealing that those regulations are a barrier to investment. And I can accept that it might take time to overhaul regulatory. regimes smartly. And so in the short term, circumvent them, but then in the medium and longer term, reform them. But we haven't started a fundamental review and reform of the regulatory

environment in Canada. And so that's another missed opportunity. So I think it's nice to see the government aware of the problem and communicate honestly about the scale of it and point in the direction of appropriate solutions, boosting investment, boosting infrastructure, boosting resources, but the follow-through on tax and regulatory reform has been missing. You've warned that Canada is entering a new economic era. What is ending? Great question. I think there's a number of factors that are all coming together at the same time, which makes, from my perspective, the next several decades economically and fiscally in Canada, very different from the last several decades. First, of course, unsubstable,

uncertainty globally. And this is not just because of trade policy changes under President Trump. There's been several years since the financial crisis effectively where the global trading environment has just been fundamentally more uncertain, more difficult, and the pace of globalization has, in many metrics, started to go in reverse. And so for a trading nation like Canada, that's a pretty significant economic risk. And it does mean that we need to focus more. on opening as many markets as we can, including our own with interprovincial barriers coming down, which there's been some moves on, but not anywhere near the scale of the total challenge there. And so it's the international uncertainty. That's a big drag for Canada and responding to it. And the fact that we've gone through a period where productivity growth and therefore GDP per capita and real income, disposable income growth has been so slow, that's a unique.

moment as well, and it'll take a long time to try and turn things around just on that front. So let me give you a stat just to reveal, I guess, the scale of the challenge. We're now producing at about 70% of the U.S. level in terms of the size of our economy per person. That is a bigger gap between us and them than at any point since the Second World War. And if we can boost growth over and above the U.S., so reversing our slowdown relative to them, and then adding to that growth,

somewhere between a half to 1% a year, it would take us about a quarter century to return to where we were in 2014, relative to the U.S. And that's a long time. And it will require our governments sustain disciplined focus on measures to improve investment incentives, improve economic growth, improve productivity growth for a generation, literally.

And then third, demographics. You know, we're aging at a pace that shouldn't be news to anyone. You know, we've all known the baby boomer retirement wave was coming. It started. We're in it right now. And this is going to strain provincial governments enormously through health systems. And no province is really ready for it. But this is something that is also going to last for the next two or three decades in terms of the immense pressure on governments.

We can't just fund health care to the extent that demographics will pressure it. Estimates vary, but somewhere between 2 to 3% of GDP would be required to a comment. demographics and health care spending, that would effectively mean we'd need to up the GST by 10 percentage points and allocate all of that. So go from 5 to 15 and allocate all that incremental revenue to health care alone, which is not going to happen. So we need to change the way health care is done fundamentally. We need to allow provinces to experiment and see what works. I think we need to ease up on the Canada Health Act and just like loosen some reins to let provinces experiment, trial and error, figure things out, and that'll take years as well.

And then finally, military spending. The scale of the increase here is bigger than I think a lot of Canadians realize. Going from 2% to 3.5% on like the core military operations as a share of GDP, if we were to fund that just on the revenue side, we have to double the GST, which we're not going to So we're going to need to think about other spending areas of the federal government and trim them back considerably. This means old age security, means a higher retirement age. It means slowing the growth of transfers to provinces, which again reinforces the importance of experimentation in health care and trying to get those costs under control and improve outcomes without spending more. And all of that very hard over many years.

And so for these reasons and more, I think we're in a very different moment where governments are going to need to be a lot more serious and a lot more focused on long-term challenges in a way that hasn't been the case for a long time. I was going to say, not something I've heard our governments being known for, long-term planning and strategy. On this note, you mentioned the baby boomer generation, and I've heard it said that this is one of the first generations where a wealthier cohort of people is actually being transferred wealth back to them. So that you have the baby boomers and then you have the millennials and stuff. We're now going to be paying for their retirement and paying into the Canada pension plan in order to support them, paying into the healthcare system, which is going to be supporting them. and they, no disrespect to them, have experienced the gains of a country. They experienced the growth in the housing market. They bought in when housing was affordable and saw it turn into a retirement plan by being

able to sell it and have a lot of wealth as a consequences. The generations coming up are not in that position. They can't buy into the housing market. And now it looks like may have to pay into this. Am I missing something in that level of analysis? I've heard it said, I'd just be interested. How do we think about that generational device? Yeah, I don't think you're thinking about it in the right way. I share all of that. And I would also add that even the past couple of years when interest rates rose pretty rapidly there in response to inflation rising, you know, that strained many, but it benefited elderly individuals. Higher interest rates tended to increase investment income. Think about now you can have GICs and savings accounts that pay a lot more than they used to. Older households,

saw their disposable incomes rise when those interest rates rose, while our younger households saw it fall as a result. And so policy, the economic environment, the housing reality in Canada, have all tended to benefit elderly Canadians. And even 10 years ago when, I guess a little more than 10 years ago, 12 or so years ago, when former Prime Minister Harper proposed to increase the eligibility age, to old age security. A very important decision to help improve the sustainability of this important federal benefit

program. And then it was reversed following the election, adding costs to government and increasing income and consequently wealth of elderly individuals who are among the wealthiest already. and least strained overall in society. Poverty rates among elderly Canadians are far, far lower than any other age group. Now, I don't want to target. It makes me seem like I'm, you know,

pointing like, oh, this is unfair, but, you know, we should recognize that policy choices have improved or increased income of elderly individuals who, didn't need it. These were very broad-based increases in old-age security payments by reversing that old age, the eligibility age. And so now, if we want to try and maintain how much we're spending an old-age security, instead of increasing it, 67, we'd have to increase it now to about 68. So the delays of trying to address this have made the adjustment

more difficult. And I don't know why, other than maybe a, you know, a sense of perspective might be that, well, elderly individuals vote a lot more than younger individuals do. And that might be part of it. But I do think we need to have a more open and honest conversation about this. We need to trim old age security to sustain federal finances in the face of rising military spending. And of course, we should do that smartly in a way that doesn't actually expose vulnerable seniors who legitimately need support to decrease this in their standards of living. But when you have well over 90% of those over 65 eligible for old age security, you're providing income to many who don't need it. So we can make the income thresholds

more aggressive, clawing back from those who have decent income, increasing the eligibility age as well. Like we need to be doing that. And the sooner do it, the easier it's going to be. Because the burden does need to fall somewhere. You know, resources, the goods and services that we need to allocate for, for health care, for the military, for any objective we want. We have to get the resources from somewhere. And if we're not spreading that burden equitably, then, you know, at least in recent years, it's tending to pile up on younger generations. And that's a challenge. Um, For us long term, it might lead people to leave, you know, and that'd be a loss of human capital

for Canada that would hurt our economy in the future. But it's also just not fair. In my subjective, like, personal view, it's, it's something where we need to do a better job balancing the burdens of society, and we haven't done that very well at all. What matters more for housing affordability, building more housing, reducing population, or changing some of the local level rules in provinces? Yeah, that's a tough question. I'm not an expert in housing policy. And so I will defer to those who are around what the issues are. I think housing like anything is going to come down to supply and demand. And that means it's going to likely be a combination of a lot of things. If demand rises, prices tend to rise. If supply falls, prices tend to rise. If you want prices to fall, think about ways of increasing supply or decreasing demand and some combination of the two. And what's responsible for the inability to build houses as quickly as we should? A lot of that

is probably regulatory burdens. And a lot of those regulatory burdens are likely from local governments. No question. Now, the pressure on local governments, will be that, well, decreasing the price of homes decreases an important store of wealth for many individuals. And so I understand the tension, the real challenge there for governments. And so there's got to be a way forward where it's done in a gradual way that doesn't undermine the retirement plans of people who may have just recently purchased a home or who were relying on that equity, but also ensuring prices start pointing in a more affordable direction for many. And that might look different in different cities.

And no doubt it does. Like the situation in Vancouver, very different than Calgary, which is very different than Fredericton. And so national approaches to this are probably going to miss the mark. And we should be thinking a little bit more locally about it. Is Alberta right to feel economically mistreated? by Confederation? Great question.

And this is certainly an active conversation going on in the province and in the lead up to our October referendum this year. I like to think about Canada as being a very decentralized and diverse country where circumstances in one province are very different than circumstances in another. And it's often very hard for federal policy. to either equally benefit or be equally burdensome on all regions at the same time. Usually it's creating winners and losers, and those winners and losers are concentrated in different ways in different regions.

And so you always have parts of Canada who feel aggravated by federal policy. There's almost no way to avoid it other than the federal government trying to eat. off what it does and leaving to provinces much more room to maneuver and design and implement the policies that are most favorable to their circumstance. So we're very decentralized in general relative to other countries, but anytime you have a federal government trying to ratchet up its involvement in areas that are, even sometimes areas beyond its actual jurisdiction, you're going to be amplifying some of these regional tensions because federal policy is, doesn't apply uniform isn't felt its effects aren't felt uniformed uniformly across the country so we've had separatist movements in canada right from the very beginning the anti-confederates of nova scotia swept the 1867 election and we're pushing hard to leave we had big epic fights between newfoundland and labrador and uh the defenbaker government at the at the time tough negotiations there uh you've had western alienation for many years as far back as the 60s when it kind of rose for the first, I shouldn't say first time because of social credit in the 30s, but up and down since then. And yeah, right now the province does, or many in the province, see federal policy as having detracted from the economic performance of Alberta. And I think that's hard to deny when it comes to policies that have made it more difficult to increase oil production.

for export through things like tanker ban off of Birch of Columbia's coast or challenges around impact assessment, environmental impact assessments affecting projects that are important in the province. No question. So I think we should recognize that. That, yeah, federal policy has detracted from economic outcomes in Alberta. Fair enough for someone to say that that's a cost worth paying because they value the non-economic benefit, but it would naturally lead to an increase in resentment within the province. But that's kind of the norm throughout Canadian history.

But what's also the norm is that when regional tensions rise, the federal government responds by being more flexible and reforming its approaches, its regulatory regimes, its fiscal transfers. You know, we have seen many different iterations of equalization, for example, largely in response to rising pressure from one region or another. And so I don't tend to see the tension or the frustration is the problem, but the lack of response to it can be problematic. And we are seeing the federal government responding, or at least rhetorically responding. I think as we talked about, they could move quicker on some other areas. But that does mean that we might on the other side. of this get to a much better, a much better place where federal policy is a little more flexible,

you know, helping facilitate economic activity that might look very different in one province to another. So I guess, yeah, in response, direct response to your question, I think that I don't view it as right or wrong. I kind of view it as natural, that many in Alberta do have that feeling, and that's a natural and common experience throughout Canadian history right across the country. The federal liberals and many people on the left say we need to diversify away from our reliance on the United States economy. Then you have individuals like David from Moose on the Loose going, this is such a big portion of our economy. It's kind of insane to start thinking our new best trading partner is going to be the UK or China or any other country

because the connection is so obvious. How should we think about our relationship economically with the U.S.? The most important determinants of who trades with whom around the world are size and distance. That explains the overwhelming majority of the volumes of trade between any two countries you want to have in mind. And the U.S. is big and close. They will always be our dominant trading partner and have been for a very long time. They were our dominant trading partner even prior to the free trade agreement itself. And indeed, throughout Canadian history, there has always been just one or two countries that

dominate, either the U.S. or the United Kingdom. That's it. And always accounting for massive amounts more than any other economy. So I think we will always have the United States as our most important trading partner. Now, diversifying in the face of changing U.S. trade policies, you know, a natural response. We had the last time we went through this kind of disruption in U.S. trade policy was the 1930s, and Canada did respond with efforts to diversify trade. We signed free trade agreements shortly after with Australia and New Zealand, for example,

and Bennett at the time really tried to get this kind of empire preference system, I think it was called, where all of the Commonwealth countries were he was trying to get them together in a free trade zone. So I think if we're pursuing this by signing more free trade agreements with other countries, that's great. That can increase productivity. It can increase opportunities for businesses to export and for consumers and businesses to import from those markets as well. So I don't think we should view new free trade agreements with, say, Brazil or Argentina, if those are up next or whatever economy we pursue agreements with. Those can all benefit the Canadian economy, but we shouldn't realistically view them as a replacement for the United States. These are just at the

margin changing how much we're trading with the U.S. I guess for some perspective, we kind of revived a lot of our effort to trade diversification in the late 1990s, where we started to sign, starting in 1997, a lot of free trade agreements. Between 1997, all the way through to the EU and the Trans-Pacific Partnership agreements, tons of free trade agreements over that span of time. And when that initiative have started, the U.S. accounted for 802% of our export, if I remember that correctly. And after all of it ended today, I believe they're around 72. So it's about a 10 percentage point drop. So the more free trade agreements we can sign, you know, the more opportunities there are, the less of a share the U.S. will account for, but they will still be overwhelmingly the majority.

So yeah, I'm all in favor of free trade and more free trade and more open competition has economic benefits for Canada. But that should be viewed just as an end in itself, not to actually materially shift away from the United States. That is always going to be big and close. We've talked a lot about the issues facing Canadians and how they may inevitably be getting poorer. what gives you hope about where Canada is heading? What gives me a lot of hope is that we have a lot of options. It's one thing to see productivity growth slowing down and economic growth slowing down and real income growth slowing as a result of policy choices.

It's quite another to see those same things as a result of fundamental, insurmountable changes to, I guess the economic environment you're in, maybe geography or some other factor is just worsened and you're stuck. Our challenge has been more on the policy front, which means we can change, we can improve. And the attention that Canadians have really demonstrated in many polls that prioritizing economic outcomes is top of mind for most Canadians. That gives me hope that governments will be pursuing more aggressively improvements in policy. And so the fact that we have a lot of options, that a lot of our challenges have been, for lack of a better term, self-imposed, that gives me hope because it means we can change.

And there's a lot that's under our control. However, how can people follow your work? Well, I'm pretty active on Twitter or X at Trevor Toombs. It's just my first name, last name. and that's usually the handle I go by by all sorts of other platforms. Thank you so much for joining us today. You have been so thoughtful in your analysis of so many issues. I try and ask the most polarizing version of the question,

because I think that the temperature is very high on a lot of these things, and I'm trying to make sure that I represent those voices, the best of my ability, because they're the ones who are going to watch this video and have feelings behind it. They may have lost their job. They may be not being able to feed their family the way they want to. So there is emotions to a lot of these conversations.

And so that's why I do that. And I think you answered all of these very thoughtfully. And I just, I really appreciate your time and the approach you take to these issues where you kind of lay out the pros and cons and remind us that it's tradeoffs. And I think the more we as citizens can think about things as tradeoffs rather than holy good or wholly bad, the stronger, the more mature, the healthier will be as a society. the more we can weigh the cost benefits and accept a bit of pain for long-term benefit or start to at least understand why we're doing some of these things, I think the more united will be, the more we can buy into some of these policy proposals and actually address some of the issues we face.

That is very well said. I think that deserves to be the final word. It was great to join you today. Thanks for having me on. The pleasure is all my.