Canada's immigration caps bring benefits and challenges

Immigration caps reduce costs from an aging population but spur economic challenges, says RBC economist

Canada's immigration caps bring benefits and challenges

Canada’s rapid population growth, driven by high levels of immigration, has helped reduce costs related to an aging population while also spurring other economic challenges, according to one economist.  

BNN Bloomberg reported that Carrie Freestone, an economist at RBC, discussed these issues in a report released Wednesday.   

Freestone noted a shift in public attitudes toward immigration, leading to a cap on non-permanent residents and limits on international study permits. These policy changes respond to the impact of population growth on housing affordability.  

However, the report stated that immigration has “long been viewed” as a strategy to slow the “pace of population aging.”   

Freestone emphasized that reducing immigration also has longer-term economic costs. “The Canadian population—like many advanced economies—is getting older. The share of the population that is over age 65 is increasing rapidly as the large baby boom generation flows through to retirement,” she said. 

The report highlighted that caps on non-permanent residents are likely to curb population growth, projecting that Canada’s population will be at least 2.5 percent smaller than it otherwise would be in 2027.   

Despite the recent caps on newcomers, Freestone explained that Canada’s population will continue to rise, as the migration rate is nearly double that of the US.  

“Even with immigration caps in place, the hit to Canadian finances from an aging population will be much smaller than in other countries because of migrants,” she said.   

Freestone warned that an aging population could create an imbalance between economic output and consumer demand. “It will add to structural labour shortages, higher price pressures, and structurally higher interest rates in the economy,” the report stated.   

Additionally, she noted that an aging population creates a significant government funding gap, as income tax revenue growth slows while the demand for services, particularly healthcare, accelerates as the population ages.