Report shows federal government’s new immigration targets will boost per capita growth after slump
The federal government’s new immigration targets will weigh on economic growth in the coming years, but will boost per capita output after a lengthy slump, according to a new analysis from the Office of the Parliamentary Budget Officer.
The PBO report, released Thursday, analyzes the economic impact of the 2025-27 immigration levels plan, which will lead to a slight decline in population over the next two years. The analysis compares the impact of the new levels plan to a status-quo scenario where immigration policy remained unchanged, and finds the changes will lead to a 1.7-per-cent downward revision to real gross domestic product by 2027.
However, real GDP per capita, which many economists use as a proxy for living standards, is expected to be 1.4 per cent higher with fewer newcomers coming to Canada.
“Per capita GDP will go up, because you will have fewer newcomers who tend to be less productive because they need time to adapt to the Canadian economy,” PBO Yves Giroux said in an interview.
Prime Minister Justin Trudeau announced in October that the government will reduce its permanent-residency target – which was previously set at 500,000 for 2025 – each year until it reaches 365,000 in 2027. The government also set temporary-resident targets for the first time as it tries to wrestle down the number of foreign workers and international students in the country. Ottawa is aiming to bring down the share of temporary residents to 5 per cent of the population by 2026. As of Oct. 1, the share was 7.4 per cent.
The federal government’s decision to slash immigration targets came in response to heightened scrutiny of its immigration policies. Record population growth in recent years contributed to the erosion of housing affordability and put pressure on services. Economists have also criticized the government’s reliance on immigration to grow the economy, while failing to prioritize the highest-skilled immigrants with the most income-earning potential. Real GDP per capita has fallen for six consecutive quarters.
Mr. Giroux said that it’s difficult to assess to what degree higher immigration contributed to the recent decline in real GDP per capita, “but it’s clear that it did play a role.” Newcomers typically earn less than more established immigrants and Canadian-born workers, putting a downward drag on average incomes in the short run.
A PBO report published last year found the income gap between new immigrants and other Canadian workers has narrowed in recent years. In 2018, new immigrants – or those who have been permanent residents for only a year – had a median income about 78 per cent of that earned by all tax filers. That was up from 55 per cent in 2014.
The PBO’s latest report expects the new immigration levels plan to reduce the number of hours worked in Canada by 1.3 billion in 2027. That decrease is mostly attributed to a decline in population, though shifting age demographics are also expected to weigh on hours worked. Household consumption is expected to be 2 per cent lower compared with the status-quo scenario. Wages, on the other hand, are expected to be 0.6 per cent higher.
With fewer workers in the economy, “that will introduce a phenomenon of scarcity on the labour market,” Mr. Giroux said. “So it will put slightly higher pressure – upside pressure – on wages.”
This article was first reported by The Globe
