2009 Index of Economic Freedom

Quick Facts

Population:

• 32.6 million

GDP (PPP):

• $1.2 trillion
• 2.8% growth
• 2.7% 5-year compound annual growth
• $36713 per capita

Unemployment:

• 6.0%

Inflation (CPI):

• 2.1%

FDI Inflow:

• $69.0 billion

Canada's economic freedom score is 80.5, making its economy the 7th freest in the 2009 Index. Its overall score is 0.3 point higher than last year, partly as a result of improved competitiveness in fiscal freedom accompanied by a reduced perception of corruption. Canada is ranked 2nd out of three countries in the North America region.

Canada scores very high in eight of the 10 economic freedoms, especially business freedom, property rights, and freedom from corruption. The process for conducting a business is straightforward and facilitates vibrant entrepreneurial activity. Overall regulation is thorough but essentially transparent. A strong rule of law ensures property rights and the transparent application of the commercial code.

Canada trails the world average only in size and expense of government. Like many European democracies, Canada has elaborate social and welfare state programs that raise government spending. However, it has been able to establish sound fiscal management and federal budget surpluses in recent years, providing a competitive edge.

Background Back to the top

Canada is a multicultural society with a strong and stable democratic political system that has proven capable of handling ethnic tensions that have arisen from time to time. One of the world's leading free-market economies, Canada is a major exporter of oil, minerals, automobiles, manufactured goods, and forest products. Over 75 percent of its exports are to the United States. Despite one of the Organisation for Economic Co-operation and Development's most restrictive foreign ownership policies in telecommunications, publishing, broadcasting, aviation, mining, and fishing, macroeconomic fundamentals remain strong. In May and June of 2008, Canada strengthened its commitment to become a more active economic and social partner in the Americas by concluding free trade negotiations with Colombia and signing a similar agreement with Peru.

Business Freedom 96.5 Back to the top

The overall freedom to start, operate, and close a business is strongly protected under Canada's regulatory environment. Starting a business takes an average of five days, compared to the world average of 38 days. Obtaining a business license requires less than the world average of 18 procedures and 225 days.

Trade Freedom 88.2 Back to the top

Canada’s weighted average tariff rate was 0.9 percent in 2006. Federal and provincial non-tariff barriers, restrictions on imports of domestic “supply managed” agricultural products, restricted access to telecommunications and media, export controls, import and export taxes, export-support programs for industry and agriculture producers, state trading boards for some agriculture products, and issues involving the protection of intellectual property rights add to the cost of trade. Ten points were deducted from Canada’s trade freedom score to account for non-tariff barriers.

Fiscal Freedom 76.6 Back to the top

Canada has moderate tax rates. The top federal income tax rate is 29 percent, and provincial rates range from 10 percent to 24 percent. The federal surtax has been eliminated, the general corporate tax rate reduced to 19.5 percent, and the federal goods and services tax reduced to 5 percent. Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 33.4 percent.

Government Size 53.7 Back to the top

Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 39.3 percent of GDP. Privatization is widespread, and the government encourages competition even in sectors formerly operated by government or privately owned monopolies.

Monetary Freedom80.8 Back to the top

Inflation is low, averaging 2.1 percent between 2004 and 2006. The market determines most prices, but the government regulates the prices of some utilities, provides subsidies to industry and agriculture producers, controls prices for some agricultural products, and may influence prices through state-owned enterprises. Ten points were deducted from Canada's monetary freedom score to account for measures that distort domestic prices.

Investment Freedom70.0 Back to the top

Canada treats foreign and domestic capital equally in almost all situations. A federal agency, Investment Canada, must approve direct foreign investments, whether through new ventures or through acquisitions. Though investment is usually approved, Canada remains one of the few OECD countries to require approval. Restricted sectors include broadcasting and telecommunications, newspapers, energy monopolies, book publishing, filmmaking and distribution, retail banking and insurance, and air transport. There are no restrictions on current transfers, repatriation of profits, purchase of real estate, or access to foreign exchange.

Financial Freedom80.0 Back to the top

Canada’s financial system provides many options for businesses and a wide range of competitive services for investors. Credit is allocated on market terms without government interference. The “big six” domestic banks dominate the financial sector, and foreign banks, despite their recent growth, account for a small portion of total assets. The procedure for foreign banks’ entry into the Canadian market has been simplified, and their overall regulatory burden has been reduced. Revisions of the Bank Act in 2007 focused on streamlining regulation and enhancing consumer protection. Mergers between large banks remain restricted, and large banks may not buy large insurance companies. The largest insurance companies are global and conduct more than half of their business overseas. Securities markets are well developed; the Montreal and Toronto exchanges merged in May 2008 while maintaining their areas of specialization.

Property Rights90.0 Back to the top

Private property is well protected. The judiciary is independent, and judges and civil servants are generally honest. Foreign investors have full access to the legal system, and private property rights are limited only by the rights of governments to establish monopolies and to expropriate for public purposes. Canada has yet to ratify the World Intellectual Property Organization's Internet Treaties, which it signed in 1997. Some companies have complained that enforcement against counterfeiting and piracy is cumbersome and ineffective.

Freedom From Corruption87.0 Back to the top

Corruption is perceived as minimal. Canada ranks 9th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Bribery and other forms of corruption are rare. Canada has signed the U.N. Convention Against Corruption.

Labor Freedom81.9 Back to the top

Flexible labor regulations enhance employment and productivity growth. The non-salary cost of employing a worker is moderate, and dismissing a redundant employee is relativly inexpensive. Rules on expanding or contracting working hours are flexible.