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About one in five employees in Canada are now government employees — and government productivity is slipping, a new report says.
The report, released Oct. 30 by the Macdonald-Laurier Institute think tank, says the number of federal and provincial government employees has grown by 30 per cent since 2015. During the same period, private sector employment grew by just 18 per cent.
But the private sector is more productive, the report says. In the private sector, productivity rose by 0.5 per cent annually since 2015, while it fell by 0.3 per cent a year in the public sector.
These productivity trends were found in all regions of Canada, said Stephen Tapp, the report’s author, at an event hosted by the Macdonald-Laurier Institute in Ottawa on Nov. 14.
Addressing Canada’s productivity crisis includes looking at ways to make governments more productive, said Tapp, who is also CEO and chief economist at the Centre for the Study of Living Standards.
Canadians are used to receiving quick and efficient services in their everyday lives, he said. Amazon boasts same-day delivery while Netflix offers customized viewing suggestions.
“[The public are] seeing efficiency and things that are exceeding their expectations in other places based on competition. [Then] they’re looking at the public sector, and they’re saying, ‘Well, why is it that we’re lagging so far behind?’” he told the crowd.
‘Not demanding enough’
Tapp shared the results of his research as part of a panel discussion on government productivity. He was joined by a former deputy minister, a former Statistics Canada chief statistician and a bank economist.
Government productivity is difficult to measure, the panellists agreed, and the reasons for government’s lagging productivity are numerous.
“Governments don’t function properly because they don’t have the right incentives,” said Munir Sheikh, a research professor at Carleton University in Ottawa and former chief statistician at Statistics Canada.
Politicians’ main goal is getting re-elected, so they want to spend money in a way that pleases people.
But Canadians do not understand the political system well enough to demand governments do more for them, said Jean-Francois Perrault, chief economist at Scotiabank.
“Canadians have not been demanding enough of their politicians,” he said.
Because many Canadians do not know how government works, they criticize the federal government for failing to perform in areas that are provincial responsibilities.
At the same time, the federal government has been too involved in matters of provincial jurisdiction, like health care, said Tim Sargent. Sargent spent 28 years in the federal government, most recently as the deputy minister for fisheries and oceans from 2019 to 2022.
“Until we really get different levels of government on their right swim lines focused on their problems and accountable for their outcomes, I don’t think we’re going to make a lot of progress on a lot of the big issues facing our country,” said Sargent, who is today director of the domestic policy program at the Macdonald Laurier Institute.
It has been “bewildering” to watch the federal government take on dental care and child-care programs, he said.
“I can assure you that the federal government knows nothing about [these topics],” he said.
Instead, the federal government should focus on matters squarely within its jurisdiction, including defence, border security and immigration, he said.
“The federal government should only do what the federal government can do,” Sargent told the crowd.
“The federal government has a pretty large to-do list of its own without taking on the provinces’ to-do lists.”
Hire and fire
The panel discussion comes on the heels of the 2025 budget, which reveals plans to reduce the size of the federal public service by 40,000 positions by 2028-2029.
Federal ministries and departments should have some flexibility about how they choose to reorganize as part of shrinking the public service, said Tapp. Union policies will impact which positions will be cut, he said.
“If things were changed in such a way that there was more ability to hire and fire, that would change the system in a dramatic way where you could probably see improvements in performance,” he said.
Sargent noted that it is “very rare” for a public servant to lose their job because of poor performance.
Tapp said the federal government should also use technology such as AI to help workers be more efficient.
“What most people [in the federal government] do is knowledge work,” he said. Artificial intelligence is well-suited to help with tasks like writing briefing notes, he said.
‘Messed up’
The speakers also spoke about the need to increase investment in Canada.
“Our corporate tax system is completely messed up,” said Sheikh. Canadians invest more outside of the country than they do in the country, he said. The tax system needs to be changed to make it more appealing for businesses to invest here.
For his part, Perrault, from Scotiabank, predicted that Canada is heading into a “dynamic time” for small businesses.
Small businesses are a key part of Canada’s economy, but it is predicted that at least a quarter of small business owners will be leaving their businesses in the next five years, he said. That could lead to new growth.
“You’ll have a new class of entrepreneurs coming in, new ownership structures, perhaps fewer small businesses because they get bought up by other small businesses,” he said.
“I actually anticipate [in] the next few years [a] much, much more vibrant small business community than we’ve seen over the last little while.”
But Tapp cautioned that the economic uncertainty brought about by U.S. tariffs may hamper business growth, particularly in regions of the country that rely on manufacturing.
Tariffs may also hamper foreign investment, he said.
“We do need to try to attract capital,” he said. “But I don’t think in 2025 and 2026 that whatever the government does [is going] to increase capital investment. It’s just going to be a very hard slough.”
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