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CANADA
 Canada's
economy is 80.2 per cent free, according to our 2008 assessment, which
makes it the world's 7th freest economy. Its overall score is 2.1
percentage points higher than last year, reflecting improvement in four
freedoms. Canada is ranked 2nd out of 29 countries in the Americas, and
its overall score is well above the regional average.
Canada scores very high in seven of the 10 economic
freedoms, especially business freedom, property rights, and freedom from
corruption. Opening or closing a business is not difficult. A strong rule
of law ensures property rights, a low level of corruption, and transparent
application of the commercial code. Financial freedom is strong because of
a lightly regulated banking sector.
Canada trails the world average only in size and
expense of government. As in many European democracies, government
spending is high because of elaborate social programs and a welfare state.
Background
One of the world's leading free-market democracies,
Canada enjoys a large trade surplus,
thanks to oil and mineral exports. Because of its bilateral trade
relationship with the United States, its economy tends to track that of
its larger southern neighbor. A protracted dispute with the United States
over softwood lumber was settled in 2005. Despite one of the OECD's most
restrictive foreign ownership policies in telecommunications, publishing,
broadcasting, aviation, mining, and fishing, macroeconomic fundamentals
remain strong, and unemployment is at a 30-year low.
Business freedom - 96.7%
The overall freedom to start, operate, and close a
business is strongly protected by Canada's national regulatory
environment. Starting a business takes an average of three days, compared
to the world average of 43 days. Obtaining a business license requires
less than the world average of 19 procedures and 234 days. Regulation is
thorough but essentially transparent. Closing a business is easy.
Trade freedom - 87%
Canada's weighted average tariff rate was 1.5 per cent
in 2005. Some federal and provincial non-tariff barriers; restrictions on
imports of domestic "supply managed" agricultural products;
restricted access to telecommunications and media; export controls, import
and export taxes, export support programs for industry and agriculture
producers, and state trading boards for some agriculture products; and
issues involving the protection of intellectual property rights add to the
cost of trade. An additional 10 percentage points is deducted from
Canada's trade freedom score to account for these non-tariff barriers.
Fiscal freedom - 75.5%
Canada has moderate income tax rates. The top federal
income tax rate is 29 per cent, and provincial and local rates range from
4 per cent to 24 per cent. The general corporate tax rate of 22.1 per cent
will be reduced to 20.5 per cent in 2008. Depending on the province, the
effective tax rate ranges from 32 per cent to 38 per cent. Other taxes
include a value-added tax (VAT), a tax on insurance contracts, and a
property tax. In the most recent year, overall tax revenue as a percentage
of GDP was 33.5 per cent.
Freedom from Government - 53.7%
Total government expenditures, including consumption
and transfer payments, are high. In the most recent year, government
spending equaled 39.3 per cent of GDP. The government has sold many
state-owned enterprises and encourages competition in sectors like
telephone service and the distribution of natural gas and electricity that
formerly were operated by government or privately owned monopolies.
Monetary freedom - 81%
Inflation is low, averaging 2 per cent between 2004
and 2006. Relatively stable prices explain most of the monetary freedom
score. The market determines most prices, but the government regulates the
prices of some utilities, provides subsidies to industry and agriculture
producers, controls prices for some agricultural products, and may also
influence prices through state-owned enterprises. An additional 10
percentage points is deducted from Canada's monetary freedom score to
adjust for measures that distort domestic prices.
Investment freedom - 70%
Canada treats foreign and domestic capital equally in
almost all situations. A federal agency, Investment Canada, must approve
direct foreign investments, whether through a new venture or through an
acquisition. Though investment is usually approved, Canada remains one of
the few OECD countries to require approval. Restricted sectors include
broadcasting and telecommunications, newspapers, energy monopolies, book
publishing, filmmaking and distribution, retail banking and insurance, and
air transport. There are no restrictions on current transfers,
repatriation of profits, purchase of real estate, or access to foreign
exchange.
Financial freedom - 80%
Canada has a sound financial system. There are 18
domestic banks, and the six largest banks account for the largest portion
of total assets. The 48 foreign banks operating in 2007 accounted for a
very small portion of assets. The government owns the Business Development
Bank, which makes loans to small and medium-size enterprises, and has
loosened restrictions on financial institutions, giving them more freedom
to offer financial services. Mergers between large banks are restricted,
and large banks may not buy large insurance companies. The largest
insurance companies are global and conduct more than half of their
business overseas. Securities markets are well developed, and some
competition has appeared with privatization of the two largest exchanges.
Property rights - 90%
Private property is well protected. The judiciary is
independent, and judges and civil servants are generally honest. Foreign
investors have full and fair access to the legal system, and private
property rights are limited only by the rights of governments to establish
monopolies and to expropriate for public purposes. Some companies have
complained that intellectual property rights enforcement against
counterfeiting and piracy is cumbersome and ineffective.
Freedom from corruption - 85%
Corruption is perceived as minimal. Canada ranks 14th
out of 163 countries in Transparency International's Corruption
Perceptions Index for 2006, ahead of the U.S., Germany, and Japan. Bribery
and other forms of corruption are rare. Canada is a signatory to the U.N.
Convention Against Corruption.
Labour freedom - 82.9%
Flexible employment regulations enhance employment and
productivity growth. The non-salary cost of employing a worker is
moderate, and dismissing a redundant employee is relatively costless.
Rigidity of rules on expanding or contracting working hours is very low.
Canada's labor freedom is one of the 20 highest in the world.
-- Courtesy: The Heritage Foundation
Quick Facts
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Population
32.3 million
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GDP (PPP)
$1.1 trillion
2.9% growth in 2005
2.7% 5-yr. comp. ann. growth
$33,375 per capita
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Unemployment 6.8%
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Inflation (CPI)
2.2%
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FDI (net inflow) $261.0
million
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Off. Dev. Assist. None
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External Debt
$684.7 billion
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Exports
$428.0 billion
Primarily motor vehicles and parts, industrial machinery, aircraft,
telecommunications equipment, chemicals, plastics, fertilizers, wood pulp,
timber, crude petroleum, natural gas, electricity, aluminum
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Imports
$385.5 billion
Primarily machinery and equipment, vehicles and parts, crude oil,
chemicals
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