Canada’s entrepreneurial base and small businesses have been quietly hollowing out for two decades, accelerated by a string of policy choices that have made starting and growing a business increasingly unattractive. According to a new MEI report that records bleak data on the decline of small businesses in Canada, Canada is producing fewer entrepreneurs despite burgeoning population growth.
MEI’s “Policy Choices and the Decline of Entrepreneurship in Canada” documents a decline that is both long-running and sharp. In absolute terms, the number of self-employed Canadians with paid help—the businesses most likely to scale, hire, challenge incumbents, and help grow GDP— peaked at approximately 867,000 in 2005. By 2025, that number had fallen to 716,000, a drop of nearly 18 percent—despite population growth of over 9 million over that same time period.
In per capita terms, about one in 37 Canadians was an entrepreneur back in 2005, compared to only one in 58 Canadians by last year.
Quebec’s numbers are even more striking: the province saw its self-employed with paid staff fall from around 194,000 to 122,000, a decline of more than a third.
The most recent data on new businesses shows the trend appears to be only getting worse over the last couple of years, where there have been more businesses shuttering than launching over the past year and a half.
“Canada has now recorded six quarters in a row of negative business creation statistics, confirming that there are more business deaths than starts. This almost never happens, even in recessionary times,” Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB), told The Hub. He described Canada as currently in an “entrepreneurial drought.”
When measuring the entrepreneurial decline as a share of the working-age population, the collapse is similarly pronounced. In 2000, roughly 3.9 percent of working-age Canadians in both Canada and Quebec were self-employed with paid employees. By 2025, that rate had fallen to 2.6 percent nationally and 2.1 percent in Quebec, the MEI report found.
The broader self-employment picture tracks the same trajectory. In 2000, self-employment accounted for 16.1 percent of total employment in Canada. By 2025, that share had fallen to 12.9 percent, the lowest in decades. Business creation rates tell a similar story. New firm creation sat at just 12.3 percent of all active businesses in 2023, roughly half the 25 percent Canada achieved in the early 1980s. Exits have also declined, suggesting that creative destruction, the competitive churn that keeps economies dynamic, has slowed to a crawl.
The MEI report, co-authored by senior fellow and Hub contributor Charles Lammam and economist Emmanuelle B. Faubert, attributes the decline to three overlapping forces: hostile tax policy, government programs that crowd out private capital, and regulations that protect incumbents while burdening new entrants.
James Brander, a University of British Columbia business professor and researcher in entrepreneurial finance, largely agrees with the research paper’s diagnosis and points first to marginal tax rates as a main culprit for Canada’s small business drought.
“Probably the most important reason for declining entrepreneurial activity is the increase in the top marginal tax rate on personal income,” Brander said. “The top marginal rate, inclusive of federal and provincial taxes, exceeds 50 percent in most provinces, including Ontario, Quebec, and B.C.”
He noted that once marginal rates cross roughly 50 percent, further increases tend to reduce revenue rather than raise it, and that entrepreneurs are particularly rate-sensitive because they can relocate to the U.S. or elsewhere, or simply conclude that starting a business is no longer worth the risk.
Brander also flagged the Trudeau government’s immigration expansion as a compounding factor, arguing it reduced the average quality of the immigrant intake in terms of entrepreneurial skills while simultaneously pushing up housing costs and straining the health-care system, all headwinds for would-be founders.
Kelly traced the longer-term erosion directly to policy. “Canada’s high-tax, high-regulation environment is the main culprit,” he said, adding that the Trudeau government’s messaging, calling business owners tax cheats during the 2017 private corporation fight, and invoking “government’s fair share” in the capital gains debate, had inflicted lasting damage on entrepreneurial confidence. “Canada’s response to the many international shocks, from tariffs to pandemic, has been punishing for small firms…The takeaway for Canadian business owners has been that the government views entrepreneurship as a societal negative.”
Kelly also flagged Canada’s labour market imbalances. He said he regularly hears from business owners who deliberately try to operate with few or no staff, not because they lack growth ambitions, but because labour shortages and what he described as imbalanced labour laws make hiring more trouble than it is worth.
“I see the main problem being that government agencies, like the Business Development Bank of Canada or the new sovereign wealth fund, become necessary as government has made it so challenging to start and operate a business,” Kelly added. “We’ve come to the point where risk-taking is so discouraged that government needs to come to the table with boatloads of cash.”
The decline of the entrepreneur in Canada has certainly been marked. As The Hub has documented in a series of stories, the share of self-employed Canadians with paid staff has fallen 57 percent since 2000, venture capital as a share of GDP has dropped from nearly 0.5 percent in 2021 to just 0.2 percent in 2024, and among G7 nations, Canada recorded zero growth in business entries from 2015 to 2024—a distinction it shares only with Italy.
Reversing the trend will require a fundamental shift in policy, not incremental adjustments, the MEI report concludes.
With the Carney government now in office, the window for that shift may be opening, but the data suggest the clock has been running for a long time. Kelly was largely unenthusiastic about the Liberal government’s just-released spring fiscal update being a rainmaker.
“It has a few positives, like a cut in the Canada Pension Plan, one of the biggest payroll taxes facing business owners, and a focus on trades training. I also like the commitment towards employee ownership trusts,” Kelly explained.
“But the lack of any progress on taxes like the small business corporate rate, or the overall regulatory environment, will not help us move the dial in encouraging entrepreneurship.”
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Canada has experienced a significant decline in its entrepreneurial base over the past two decades, losing a net 151,000 businesses and entrepreneurs due to unfavorable policy choices. A recent MEI report highlights that the number of self-employed Canadians with paid help has dropped nearly 18% since 2005, despite population growth. The report attributes this decline to high taxes, government programs that limit private capital, and regulations that favor established businesses. With six consecutive quarters of negative business creation statistics, experts warn that Canada is facing an ‘entrepreneurial drought’ that requires substantial policy changes to reverse.