The government spends more every year, but your standard of living hardly budges. So is all that spending really working? (Troy Media)

The government spends more every year, but your standard of living hardly budges. So is all that spending really working? ~~ by Ian Madsen

The idea that government spending drives economic growth is not just mistaken—it’s economically destructive.

Politicians routinely describe higher government spending as “stimulative” and any attempt to slow it as “austere” or anti-growth. Some even label modest increases “restrictive” if they don’t match prior growth rates. But this thinking isn’t supported by evidence. Canada’s own experience proves that rising public spending has not translated into prosperity. In fact, it has done the opposite.

For the past decade, government spending in Canada has grown faster than the economy. According to Statistics Canada, federal debt exploded from $649 billion in 2014 to nearly $1.44 trillion in 2024, a compound annual growth rate (CAGR) of 8.3 per cent (CAGR is the average annual growth rate that accounts for the effect of compounding over time, meaning each year’s growth builds on the previous year’s total). Over the same period, GDP grew at just 1.76 per cent annually. Public sector spending grew at 2.2 per cent: it outpaced economic growth and added to the country’s debt burden.

Canada’s population rose from 35.6 million to 41.5 million during this time, a CAGR of 1.55 per cent. Real per capita GDP—an indicator of how much wealth each Canadian is generating—grew by just 0.2 per cent annually, meaning Canadians saw minimal gains even as debt ballooned.

Government spending crowded out private sector productivity and left a growing burden for future generations.

Contrast that with the decade before. Between 2004 and 2014, including the 2008 recession, GDP grew at 1.9 per cent annually. Federal spending increased at a more restrained 3.3 per cent rate. Population growth was lower, just one per cent annually, but real per capita GDP rose by nearly one per cent per year. Less aggressive government spending coincided with stronger economic performance and higher individual prosperity.

This should not be surprising. Government spending typically flows into consumption (such as transfers to individuals), health care, education, law enforcement, administration and infrastructure. While some of these services are essential, they don’t inherently generate productivity or long-term economic value.

Take infrastructure: Ottawa’s single largest project has been the Trans Mountain pipeline expansion, $33 billion and counting, for a route that already existed. Then there’s the $2.7 billion handed to Northvolt for a now-bankrupt electric vehicle battery plant.

Other examples of waste include the CBC, which received $1.44 billion in taxpayer funds in 2023–24; Canada Post, which absorbed another $748 million; and the Phoenix payroll debacle, which has cost taxpayers $3.5 billion since 2016. These are just a few examples of how public money is routinely misallocated.

Meanwhile, the federal workforce has ballooned. Since 2014, Ottawa has added more than 110,000 employees, a 43 per cent increase, while the population grew by just 16.6 per cent. Had the public service merely kept pace with population growth, it would have added only 42,465 positions.

Instead, taxpayers are on the hook for 57,535 extra employees. With the average personnel cost pegged at $178,500, this adds $10.3 billion to the annual payroll—enough to meet Canada’s NATO defence spending target of two per cent of GDP, a longstanding but unmet commitment to our allies.

Despite massive increases in health spending, wait times have worsened and millions still lack a family doctor. More money hasn’t meant better outcomes.

At least three academic studies have confirmed what the numbers already show: as government spending rises, GDP growth declines. The evidence is already overwhelming—we don’t need more studies. We need action.

Canada must reverse course: spend less, spend smarter and direct public dollars where they generate lasting value. If we don’t, we’re guaranteeing long-term stagnation and unsustainable debt.

Ian Madsen is a senior policy analyst at the Frontier Centre for Public Policy.

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