There’s an Inevitable Headwind Against Entrepreneurship in Canada

Colin R. Singer
septembre 26, 2016

As Canada’s population continues to age, immigration will play an increasingly important role in the creation of new businesses but it won’t be the only solution.

A recent study released by the Fraser Institute suggests that the demographic shift towards an older population is already dragging down the number of new businesses starting in Canada.

According to Jason Clemens, executive vice-president of the Fraser Institute and co-author of the report, “There’s an inevitable headwind against entrepreneurship, which is this demographic change.”

The report, based on data from Statistics Canada, found that in 2004 there were 17.9 new firms for every 100 existing businesses. By 2012, that number had dropped to 15. This decline correlates with a 15 percent increase in the proportion of Canadians over age 65.

According to Statscan, in 2009 there were 120 children for every 100 seniors in Canada. The federal statistics agency forecasts that those numbers will become equal sometime between this year and 2021.

The demographic shift, which is trending to as few as 58 children for every 100 seniors by 2036, will have a major impact on the Canadian economy.

While the decline in the number of new businesses will mean less job creation in the short-term, Mr. Clemens says that if nothing is done about the demographic shift, Canada’s future could be at risk. He warns that with a shrinking proportion of the population paying taxes, provinces will struggle to cover growing healthcare costs while also continuing to fund other services.

According to Michael Bloom, vice-president of Industry and Business Strategy at the Conference Board of Canada, Immigration will also play an increasingly prominent role.

“In order for us to be able to project economic growth at a desirable level, in the long-term, we must raise immigration to one percent annual inflow by 2025 to 2030,” Mr. Bloom says.

Canada currently accepts around 250,000 immigrants a year, an annual inflow of around 0.7 per cent of the population.

Immigration is not only important to maintaining economic growth, it’s also important to maintaining entrepreneurship rates.

Immigrants are 1.6 times more likely to start businesses than native-born Canadians according to a report released by the Business Development Bank of Canada in the fall.

Federal programs that were intended to encourage entrepreneurs and investors to immigrate to Canada stopped accepting applications in 2012 and were scrapped in June 2014. The federal government said the programs were ineffective at bringing new money into Canada and creating new businesses.

A new startup visa program, launched as a pilot project and intended to lure high-tech entrepreneurs to Canada, has only issued a handful of visas in two years.

Canada needs to dramatically increase the number of young immigrants it accepts, he says, and even if it is mathematically possible, there would be practical challenges.

For Mr. Clemens, other policies need to change to encourage entrepreneurship and investment by both new and native-born Canadians. One policy change he’d like to see is the scrapping of the capital gains tax.

“It’s low cost,” he says. “The federal government doesn’t collect all that much revenue from the capital gains tax.”

Attorney Colin Singer Commentary

The Conservative government has a stated distaste for business immigrants. Despite having a dubious history in this area, it recently launched an unsuccessful venture capital investor pilot project. The Citizenship and Immigration Ministry under former Minister Jason Kenney allowed more than 15,000 wealthy investor applications to languish in an unmanaged backlog, some dating back to 2008, before extinguishing their applications in 2014. The record is clear that the current government has adopted a series of policies that have significantly reduced the flow of business immigration to Canada.