Want a low-cost economic initiative? Fix the immigration mess

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It can’t be easy to be Canada’s finance minister right now. Chrystia Freeland should lean on Immigration Minister Marc Miller for a hand.

Ms. Freeland is promising the middle class a better future, Canadians are screaming about rent increases and the Business Council of Canada is calling for a growth strategy in the budget she will deliver April 16. But there isn’t a lot of cash to spare in federal coffers or credit lines.

Ms. Freeland can’t, or shouldn’t, offer a lot of big-money fiscal-policy plans. But Mr. Miller could do a lot of favours for the economy with immigration reforms.

A spurt of rapid population growth and a screwed-up immigration selection system are combining to damage the economy by fuelling current inflation and hindering future growth.

Canada saw its population grow faster than most countries in the world in 2023, adding more than 1.2 million people in the year to Oct. 1, a 3.2-per-cent increase. Most of the growth came in the form of an additional 800,000 additional temporary residents – there are now 2.5 million in Canada – primarily foreign students and temporary workers.

Mr. Miller has taken a first step by announcing a cap on new student visas. But the Immigration Minister also needs to undo the many dumb things the government has done at the behest of business lobbies to muck up Canada’s labour markets.

The sudden surge in population has exacerbated the housing shortage, a structural problem that is getting in the way of the Bank of Canada’s efforts to combat inflation.

There are also signs that the growth spurt, and the bungling of immigration policy, are causing other economic problems.

Canada’s real gross domestic product grew by just 1.1 per cent in 2023. But because the population was growing faster, GDP per capita – and the standard of living – actually shrank significantly.

At least part of the decline must be due to the population surge, according to Mikal Skuterud, a University of Waterloo economics professor.

It’s not clear yet if that will be a lasting effect, but some fear it is also turning into an impediment to future growth.

The ballooning labour force made for cheaper labour that encourages business to skimp on investment in technology and equipment – which leads to lower productivity.

Scotiabank senior vice-president and chief economist Jean-François Perrault notes that Canada already has a productivity problem and low business investment.

“It’s hitting us in our weak spot,” he said.

The first order of business is obviously to tame the growth in temporary residents.

The cap on student visas has to be followed by a reform of eligibility for visas and the three-year postgraduate work permits that follow.

Mr. Miller also needs to clean house in the hodgepodge of temporary foreign workers programs. That includes scrapping the stream for low-wage workers and revamping government labour market assessment that make it far too easy for companies to claim they can’t get Canadians to fill their job opening.

Yet that’s not enough. Mr. Miller has said Canada has gotten addicted to temporary workers, but he and Ms. Freeland should recognize that Canada has a wider addiction to recruiting cheaper labour – and that the government is the enabler.

The system for selecting permanent residents has been so mucked up that there is now a heavy incentive for prospective immigrants to come as temporary residents and hope they will get permanent status one day, Mr. Skuterud argues.

The express-entry selection system for what is known as the economic class of immigrants is supposed to be based on scores using criteria including education and skills. But in recent years, especially during pandemic recovery, the Liberal government started making a lot of special programs to put certain classes of workers at the top of the pile, for occupations such as truck drivers, estheticians, dental assistants and others.

The unpredictable announcement of such programs made temporary residence more like a ticket to the permanent residence lottery. It also left people with strong scores – individuals assessed to bring higher human capital and productivity into Canada – on the waiting list. Instead of recruiting valuable human capital, the goal has become intervening in labour markets.

The good news is that a lot of the mess can be fixed just by undoing mistakes the government has made in recent years. And it won’t cost the treasury billions.