High levels of immigration are helping to smooth the economic impact of demographic aging in Canada. However, according to a report by the Royal Bank of Canada (RBC), they have intensified challenges related to housing affordability.
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Carrie Freestone, an economist at RBC, indicated that Canadian retirees continue to demand goods and services, such as healthcare, old age security benefits, and the Canada Pension Plan. This consumption creates a mismatch between the economy’s productive capacity and demand. With fewer people contributing to public service programs and more people receiving benefits, the gap between tax revenues and the funds needed to sustain services widens.
“This is problematic,” Freestone commented in an interview. “If we have fewer workers producing goods and services, but more people consuming, a mismatch between demand and supply is created.”
The report notes that with recent reductions in Canada’s immigration policies, the population is projected to be 2.5% smaller in 2027 compared to initial estimates if the policies had not changed. The cap on the number of non-permanent residents means 1.1 million fewer people in Canada by 2027.
Freestone highlighted that many do not understand the economic impact that an aging population and a low birth rate can have, such as labor shortages. Statistics Canada indicates that 2022 recorded the lowest fertility rate in the country’s history, with only 1.33 children per woman. As healthcare, old age security, and social program costs rise, governments may face larger deficits, potentially resulting in higher taxes to cover them.
Freestone suggested that a more effective way to address this problem is to attract working-age immigrants, even if more gradually. “Our population continues to grow every year, as does the number of permanent residents,” Freestone indicated. “That is positive.”
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