Foundations for Growth and Competitiveness 2026

Canada

Canada’s GDP per capita (in PPP) is slightly above the OECD average but remains below that of top-performing countries, despite significant potential for higher levels thanks to strong institutions, a highly skilled workforce, and abundant natural resources. This gap is largely due to a below-average productivity level, which has declined further relative to top-performing economies in recent years. The capital stock per worker also remains below average. While overall labour utilisation is high, female labour force participation continues to lag slightly that of men.

Policy priorities should focus on boosting sluggish productivity growth by enhancing investment in physical and digital infrastructure and fostering a more competitive and dynamic business environment. Further key actions include reducing interprovincial barriers to trade and labour mobility, and lowering entry barriers in regulated sectors, including restrictions on foreign investment in these sectors. Labour utilisation among women and other underrepresented groups, such as immigrants, also has room for improvement.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panel A: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases; Panel D: OECD, Economic Outlook and Annual National accounts, GFCF by assets databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Taxation: Shift away from a high reliance on personal and corporate income taxes

Canada’s tax structure places a relatively greater emphasis on personal and corporate income taxes, while the contribution from goods and services taxes remains comparatively low. Shifting a larger share of the tax burden from income to consumption could enhance the growth-friendliness of the tax system. For instance, reducing income taxes for individuals with weaker labour market attachment could help incentivise greater labour force participation. Also, SMEs benefit from a preferential corporate tax rate, which may discourage firm growth and weigh on productivity.

Recommendations

✓ Gradually shift towards more indirect taxation, such as by increasing the Goods and Services Tax/Harmonised Sales Tax (GST/HST) rates and phasing out zero-rates for items like basic groceries, agricultural products and prescription drugs, to finance a decrease in income taxes.

✓ Discontinue the preferential corporate tax rate for SMEs.

Product market regulations: Reduce interprovincial barriers to trade and labour mobility

Canada’s regulatory environment, as measured by the economy-wide Product Market Regulation (PMR) indicator, is more restrictive than the OECD average. This is largely due to elevated entry barriers in services and network sectors (see next section), as well as comparatively high administrative burden on businesses in relation to licensing and permitting processes. Entry into professional services also remains comparatively tightly regulated and varies across provinces. The PMR indicator also signals some distortions stemming from public ownership. Business surveys highlight persistent barriers to interprovincial trade.

Recommendations

✓ Further reduce interprovincial barriers to trade, including through widening the scope and powers of the Canadian Free Trade Agreement.

✓ Standardise the recognition of professional qualifications across provinces, including for foreign qualifications, and ease provincial restrictions on the free movement of professional services.

✓ Reduce preferential treatment of state-owned enterprises (SOEs), such as lighter regulatory requirements or tax advantages, compared to private companies.

Digital infrastructure: Enhance competition in the telecommunications sector and expand the provision of fast broadband

Canada performs below the OECD average in terms of broadband network coverage, including fibre-optic infrastructure, and broadband affordability. While part of this can be attributed to the high infrastructure development costs associated with Canada’s vast geography, market entry in the telecommunications sector remains restricted, especially regarding foreign companies, limiting competition.

Recommendations

✓ Lower foreign-ownership restrictions in the telecommunication sector.

✓ Facilitate the use of telecommunication networks of larger telecommunication firms by smaller competitors.

✓ Continue expanding access to broadband networks to rural and remote communities.

Openness to foreign direct investment: Decrease barriers to foreign investment in network sectors

Canada generally offers a welcoming foreign investment environment, as reflected in its relatively high inward foreign direct investment (FDI) relative to GDP. However, it maintains strict foreign ownership restrictions in some key network sectors, such as telecommunications, airlines, banking, residential real estate, and broadcasting. For instance, telecom operators with over 10% market share may not exceed 46.7% foreign voting equity. That said, greenfield entry, acquisition below the 10% threshold, and organic growth is possible. Similarly, broadcasting licenses are restricted to Canadian-controlled entities.

Recommendation

✓ Review foreign entry restrictions in key network sectors, balancing national security considerations with the potential negative impacts on competition and productivity, with a view to gradually easing these restrictions.

Housing: Expand the supply of housing, including of affordable rental housing

Significant increases in house prices and rents have significantly deteriorated housing affordability. This is largely driven by an insufficient overall supply of housing and a mismatch between available housing and demand, particularly a shortage of affordable rental units and housing in urban centres. The share of social housing in number of dwellings is very low. These factors are hampering economic growth by constraining labour mobility.

Recommendations

✓ Continue to promote and implement zoning reforms in urban centres to encourage the development of more medium-density housing.

✓ Expedite the permitting process for housing development by putting in place electronic and one-stop systems, and improving the tracking of approvals.

✓ Provide additional funds for the development and protection of social and affordable rental housing.

Recent progress on structural reforms

In terms of the regulatory environment, especially in what regards interprovincial trade barriers, there has been progress. Since 2024, all 53 federal exceptions under the Canadian Free Trade Agreement (CFTA) have been removed. The total number of party-specific CFTA exceptions by the federal government and the four largest provinces is down by roughly half since 2024. Several provinces and the federal government have introduced bills to enable the free flow of goods, services, and labour by recognising each other’s rules, either mutually or unilaterally. A pilot project was launched in September 2024 among several provinces to enhance mutual recognition of regulatory requirements in the trucking sector. The launch of the Canadian Internal Trade Data and Information Hub in 2024 marks a step forward in improving transparency around internal trade barriers. Expanding access to affordable childcare is a major achievement in supporting women’s labour market participation and the roll-out should be pursued.