Reality check—governments in Canada are large and growing

The Carney government’s plan to shrink the federal “public service” has sparked debate about the proper size of the federal government. Before taking a stance on this question, Canadians should understand how large the government sector is today, and how the size of government impacts them.

So how big is Canada’s government sector?

According to our recent study, in 2024 (the latest year of available data) 21.5 per cent of employed Canadians worked for government. For comparison, in 2019 (the year before the pandemic), this number was only 19.6 per cent. Of course, governments fund their spending—which includes the salaries of government workers—by taxing the private sector. These numbers show that in recent years, private-sector workers and other taxpayers have paid for a larger number of government-sector workers.

For a more complete view of the size of government, economists measure total government spending as a share of the economy. In 2019, total government spending (federal, provincial, local) equaled 40.3 per cent of Canada’s economy (measured by GDP) compared to 43.6 per cent in 2024.

And you can’t blame the pandemic. Government spending (as a share of GDP) did increase in 2020 and 2021, but by 2022 spending had declined to 40.0 per cent, slightly below pre-pandemic levels. Canada’s recent increase in the size of government has occurred because of choices governments made after the pandemic.

Why should Canadians care about the size of the government sector? Because large governments come with large costs.

When Canadians must support a large government, they keep less of their hard-earned money than they would otherwise. If Canadians didn’t have to fund such a large government sector, they would keep more of their own money to spend on housing, food and other priorities. And when governments borrow money, taxpayers pay interest on that debt. That’s money that goes to bankers and bondholders rather than health care, education and social services.

Moreover, large governments can negatively affect economic growth, which is closely tied to living standards. While a successful economy requires government to provide basic services such as police and courts, when governments get too big and take over activities and decisions that are best left to private individuals, economic growth can suffer. Research suggests that the ideal size of government for maximizing economic growth is between 24 and 32 per cent of a jurisdiction’s economy. Canada’s current size of government (43.6 per cent) is well above this range.

All levels of government contribute to Canada’s large government sector, and all can contribute to shrinking it. The Carney government, and some provincial governments, have promised to improve affordability and strengthen economic growth. For its part, in its next budget, the Carney government should reduce the size of government, which will require some tough decisions about the number of government employees and size of certain departments.

Canadians will have a range of opinions regarding the appropriate size of government. However, before deciding on the issue, Canadians should understand where things stand today. Canada’s government sector is large and has grown in recent years, and this large government sector comes with costs to taxpayers and the Canadian economy.