Canada's immigration is bringing in too many people too fast, dragging down economic output, claims a report by a major Canadian bank."There is a sweet spot when it comes to economic immigration — where everyone is better off over time — but it is narrow and Canada has strayed far off course," state authors Rebekah Young and Rene Lalonde in Raising the Bar, Not Just Lowering the Number: Canada’s Immigration Policy Confronts Critical Choices. The report was published by Scotiabank on March 21.The country officially added 1.25 million people in 2023 for a 3.2% year-over-year uptick. Ottawa hit its permanent resident target of 465,000, but an additional 800,000 non-permanent residents also settled in Canada last year.The authors say an annual cap on new foreign visas at 360,000 will stall growth but stabilize the number of international students in Canada. Meanwhile, data from the labour force survey suggests the Canadian population rose faster in January and February 2024 than any previous time in history."Given the chronic challenge of low investment rates in Canada, we estimate Canada’s productivity-neutral pace of population growth is only around 350K annually — temporary or otherwise," the authors write."In the absence of stronger investment, increases in population beyond that lower the capital-to-labour ratio and depress productivity. We estimate about two-thirds of productivity declines since 2021 stem from this population shock.".The authors warn that growing pains have left policymakers "scrambling to plug holes and place caps across a highly-fragmented system" and that a "reset" is needed. They warn that "immigration has unfairly become a lightning rod for almost all that ails Canada," including housing shortfalls and hospital wait-times."A start would be firmly placing economic immigration in the context of a broader productivity agenda. That agenda should focus on boosting capital spending to match," the authors say."A sharper focus on economic potential could make better use of Canada’s predictive points-based admissions tools for permanent residents, while exploring an equivalent bar for businesses hoping to hire labour from abroad. Collaborative investments in newcomers’ potential well-after landing are also critical."According to Statistics Canada, foreign investors reduced their holdings of Canadian shares by $48.7 billion in 2023, following a $12.0 billion divestment in 2022. Scotiabank says that's the wrong direction."Business investment would need to rise by about 15% over a two-year period for each million increase in population beyond the average historical pace of population growth. We have seen such large increases in capital formation in the past, but those episodes were few and far between and they have tended to occur when oil prices have risen sharply," the authors state.The report said the number of permanent residents who arrive should be driven by their potential to contribute to the Canadian economy, while a set number of "total net inflows" was also useful for planning."Population growth should be a source of economic strength and should give Canada a competitive advantage over countries with declining populations. That can only happen if Canada ensures that immigration policy is focused on individuals with high economic potential and is matched with equally significant increases in business investment," the authors write."Absent that, the country will remain on the current trajectory of declining productivity and competitiveness. This is a path Canada can ill afford."
