A new report by economist Don Drummond says weak productivity, rising deficits and US dependence require urgent government action
Canada is drifting toward a fiscal and economic reckoning that governments are not taking seriously enough, according to a new report from the C.D. Howe Institute.
In The Endgame: Time to Act on Canada's Economic and Fiscal Challenges, Don Drummond, Fellow-in-Residence at the C.D. Howe Institute in Toronto, argues that the country's chronic productivity weakness, overreliance on US markets, and widening fiscal deficits are compounding risks that, without decisive policy action, will leave Canadians with stagnant living standards while shifting today's debt burden onto younger and future generations.
"With weak productivity growth, an ageing population and lower immigration, Canada's economy could grow by just 0.5 per cent this year and next," Drummond writes. "That means rising deficits and debt, leaving governments with less fiscal room to respond to future challenges and improve living standards."
Last in the G7
The report's diagnosis begins with Canada's growth record. Drummond finds that Canada ranked last in the G7 for growth in gross national income per person over the decade to 2023.
That finding reflects a long-running productivity problem, that since investment levels pulled back in the mid-2010s, GDP per capita growth has averaged 0.1 per cent per year, according to Statistics Canada data.
Statistics Canada reported that real GDP per capita declined 1.3 per cent in 2023 and another 1.4 per cent in 2024, even though the overall economy continued to expand. Total GDP growth over this period was driven primarily by population, not productivity - a distinction Drummond treats as central to the country's long-term problem.
The persistence of Canada's productivity gap has been a recurring concern among Canadian economists. Drummond's report adds to a body of C.D. Howe work warning that governments have consistently underestimated the structural nature of the problem.
The US dependence risk
Drummond identifies Canada's overreliance on the US market as a compounding vulnerability.
With trade tensions between Ottawa and Washington ongoing, Canadian firms face growing difficulty competing and scaling internationally. The report argues these pressures will intensify as the population ages and as the economy absorbs the costs of climate change; two trends that limit government's future fiscal flexibility.
Without bold action, combined federal and provincial net debt is projected to approach 82 per cent of GDP by 2028–29 - far above pre-pandemic levels, according to a related April 2026 C.D. Howe report co-authored by Drummond, William B.P. Robson, and Alexandre Laurin. That report described Canada as drifting toward a fiscal crisis while policymakers remain inclined toward short-term measures over structural reform.
The federal government's Spring Economic Update, released in spring 2026, projected deficits of more than $50 billion annually through 2030–31, according to a separate C.D. Howe analysis, a trajectory Drummond's Verbatim treats as unsustainable.
What Drummond recommends
The report sets out a broad reform agenda across fiscal policy, taxation, regulation, and trade.
Drummond calls for eliminating internal trade barriers and streamlining regulatory processes, arguing these changes would lower costs for Canadian businesses and improve competitiveness without requiring additional public spending.
On tax, he recommends shifting some of the burden away from corporate and personal income - which he characterises as economically damaging - toward consumption taxes, while lowering marginal rates. He also calls for a comprehensive review of government spending to identify better value for money, and for greater flexibility on post-secondary tuition to strengthen human capital formation over the longer term.
Drummond acknowledges the politics are difficult. He asks Canadians to recognise that meaningful improvements will take time, even if governments act quickly. But he argues delay makes the eventual adjustment harder.
"While many cite Canada's lower net debt-to-GDP ratio than other G7 countries, being the least indebted country in a heavily indebted group is not a fiscal strategy," he writes. "The endgame should be a stronger, more resilient, and diverse economy with stable finances. Now's the time to act."
What comes next
The Verbatim is one part of a broader C.D. Howe output on Canada's fiscal challenges. A companion Shadow Budget - co-authored by Drummond, Robson, and Laurin - addressing the country's fiscal situation in more granular policy detail is scheduled for release this fall.
Drummond brings significant institutional credibility to the analysis. He spent nearly 23 years at Finance Canada, including as Associate Deputy Minister responsible for economic analysis, fiscal policy, tax policy, and federal-provincial relations, before moving to academia and the C.D. Howe Institute. His previous work on Canada's deficit trajectory has consistently warned that the country's fiscal architecture leaves little room to absorb future shocks.
The full report is available at cdhowe.org.
