Canada’s economy is tanking, but investors have options

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The Canadian economy is in some serious trouble if it stays on its current trajectory, as it has had the worst growth out of 50 developed economies since 2019.

This isn’t a surprise because growth comes from capital investment, whether from Canadians directly or from foreign investors, and the environment here keeps getting less and less attractive.

Business investment has plunged by a third under the Justin Trudeau government, according to Peter St Onge, an economist and a fellow at the Mises Institute, while government spending has nearly doubled to now account for almost half of the country’s gross domestic product. Bankruptcy filings here jumped 40 per cent last year, and the Canadian Imperial Bank of Commerce said nearly half of Canadians have zero emergency savings.

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Unfortunately, this is taking its toll on the Canadian dollar, which has already fallen 13 per cent against the U.S. dollar since peaking in May 2021 and is down to 72 cents U.S. This means higher costs for goods imported from the United States. Keep in mind that Canada imported US$277-billion worth of goods from the U.S. in 2023.

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Meanwhile, Trudeau’s solution is to hire more government workers. Over the past year, the public sector has grown by approximately 180,000 workers, more than the private sector and self-employed combined. Looking at the longer term, St Onge points out that the number of government workers is growing almost four times faster than the private sector and that one in three Canadians now works for the government (and they make 30 per cent more in salary and benefits than their private-sector counterparts).

Yes, it appears that inflation has been tamed, but St Onge highlights that since the pandemic, Canada’s official food inflation is up 25 per cent, and energy costs are up over 30 per cent thanks, in part, to the carbon tax. Our citizens are now so overly taxed that it is now impossible for them to get ahead.

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The “average Canadian family paid more in 2023 on taxes than it did on housing, food and clothing combined,” according to a recent study by the Fraser Institute. “In 2023, the average Canadian family earned an income of $109,235 and paid in total taxes equaling $46,988.”

For those lucky enough to make a bit more by working longer hours and/or taking on more jobs, the personal tax rate on Canadians living in Ontario and making more than $246,752 is 53.5 per cent, which Trudeau has increased from the 46.4 per cent charged in 2011. This means their tax rate is seven to 18.5 percentage points higher than in Australia, China, the United Kingdom, Germany, Japan, the U.S. and Mexico.

The problem is that the minimum income required to qualify for a mortgage on the average house in Canada is roughly $200,000. As a result, only those who the government calls the wealthiest for tax purposes can qualify to buy a home here.

The bad news is that housing prices certainly don’t appear to be getting cheaper due to our current immigration policy, which allows significantly more newcomers than the number of homes available. In the past six months, Ontario’s population has risen by nearly 200,000 people compared to only 36,000 home starts, which are largely one-bedroom, studio condos and rental apartments, according to economist Mike Moffatt.

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Other than leaving the country or working for the government, there aren’t a lot of options for the average Canadian to protect themselves from what is coming. The federal election isn’t until late 2025, and I fear the current Trudeau government is all too keen to double down on its existing policies, which could make matters significantly worse.

Fortunately, investors can be a lot more flexible with their portfolios, such as by holding more U.S. dollars and stocks such as oil and gas that can benefit from a falling Canadian dollar. There are also more favourable jurisdictions that are all too happy to have your capital, although be prepared to report it to the federal government since it will want to get a good slice of whatever profits you make.

Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

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