CANADA

C anada’s economic freedom score is 78.2, making its economy the

9th freest in the 2020 Index. Its overall score has increased by 0.5
point due primarily to an increase in the score for government integrity.
Canada is ranked 1st among 32 countries in the Americas region, and its
WORLD RANK: REGIONAL RANK: overall score is well above the regional and world averages.
9 1 The last time Canada’s economy was rated fully free was in the 2014
edition of the Index; since then, it has been stuck in the mostly free cate-
ECONOMIC FREEDOM STATUS:
gory. That weaker performance has been mirrored by relatively lackluster
MOSTLY FREE GDP growth averaging just 1.9 percent over the past five years.

For Canada’s economy to be rated free, the government would need

to reduce spending and reform labor laws to create a more flexible
labor market. That seems unlikely given the 2019 budget that increased
spending, in part to support partial nationalization of the pharmaceuti-
cals sector, help first-time home buyers, and retrain workers.

ECONOMIC FREEDOM SCORE

▲ UP 0.5 POINT
78.2


0 50 60 70 80 100

REGIONAL AVERAGE
(AMERICAS REGION) 60.0 61.6 WORLD
AVERAGE

HISTORICAL INDEX SCORE CHANGE (SINCE 1995): +8.8

RECENT FREEDOM TREND QUICK FACTS

90

POPULATION: UNEMPLOYMENT:
37.0 million 5.9%
80 78.0 78.5 77.7 77.7 78.2
GDP (PPP): INFLATION (CPI):
$1.8 trillion 2.2%
1.8% growth in 2018
FDI INFLOW:
70 5-year compound
$39.6 billion
annual growth 1.9%
$49,651 per capita PUBLIC DEBT:
90.6% of GDP
60

2016 2017 2018 2019 2020 2018 data unless otherwise noted. Data compiled as of September 2019

BACKGROUND: Canada is the world’s second-largest country by land area and has its 10th-largest econ-
omy. Prime Minister Justin Trudeau’s Liberal Party managed to win a second term in office in October 2019
national elections despite a corruption scandal that tarnished Trudeau’s political brand. Although Trudeau
remains in power, he was forced to form an inherently unstable minority government. Canada closely
resembles the U.S. in its market-oriented economic system. Leading sectors include automotive and other
manufactures, forest products, minerals, and petroleum. About three-quarters of Canada’s exports are to
the United States, so the continuation of a free- trade arrangement with its southern neighbor is critical to
Canada’s economic well-being.

168 2020 Index of Economic Freedom

 WORLD AVERAGE | ONE-YEAR SCORE CHANGE IN PARENTHESES

12 ECONOMIC FREEDOMS | CANADA

RULE OF LAW GOVERNMENT SIZE
(+0.7) (+3.3) (+5.7) (–0.3) (–0.4) (+0.2)

100 100

80 80

70 70

60 60

50 50

87.7 72.7 90.3 76.5 50.9 83.3

0 0
Property Judicial Government Tax Government Fiscal
Rights Effectiveness Integrity Burden Spending Health

Property rights are generally well protected, both by law and
through the enforcement of contracts. Expropriation is highly
unusual. The judicial branch of government is independent,
and courts are considered procedurally competent, fair, and
reliable. Canada’s reputation for clean government with little
corruption was tainted in 2019 when Justin Trudeau became
the first Canadian prime minister to be found to have broken
federal ethics rules.
The top federal personal income tax rate is 33 percent, and
the top corporate tax rate is 15 percent. Other taxes include
value-added and property taxes. The overall tax burden
equals 32.2 percent of total domestic income. Government
spending has amounted to 40.5 percent of the country’s
output (GDP) over the past three years, and budget deficits
have averaged 0.4 percent of GDP. Public debt is equivalent
to 90.6 percent of GDP.

REGULATORY EFFICIENCY OPEN MARKETS


(–0.2) (–1.7) (–1.2) (+0.2) (No change) (No change)

100 100

80 80

70 70

60 60

50 50

81.7 72.0 76.0 87.0 80.0 80.0

0 0
Business Labor Monetary Trade Investment Financial
Freedom Freedom Freedom Freedom Freedom Freedom

Regulations are transparent and well defined for the most
part, allowing businesses to run efficiently and dynamically.
Paid annual leave and paid sick days were increased recently.
Provincial labor codes differ somewhat from one jurisdiction
to another. A 2019 University of Calgary report estimated that
business subsidies from the four largest Canadian provinces
amount to about $29 billion annually.
The total value of exports and imports of goods and services
equals 65.9 percent of GDP. The average applied tariff rate
is 1.5 percent, and 451 nontariff measures are in force. The
overall investment framework is efficient and transparent. The
financial sector provides a full range of competitive services.
The six principal banks remain dominant, but it is relatively
easy for foreign banks to enter the market.

The Heritage Foundation | heritage.org/Index 169