Canadian entrepreneurship in ‘sharp decline,’ warns think tank

Charles Lammam was happy to see a more business-friendly tone from the Carney government, but is worried about its focus on government-led initiatives. Photo by Blair Gable /Postmedia

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OTTAWA — A free-market think tank is warning that high taxes and big government are snuffing out private sector entrepreneurship in Canada.

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“Entrepreneurship — the heartbeat of innovation, job creation and economic growth — is in sharp decline (and) has been declining for decades in Canada,” warns a new report from the Montreal Economic Institute.

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The report shows that the number of self-employed Canadians with paid employees peaked at about 867,000 in 2005. By 2025, that number had dropped to 716,000, a decline of 17 per cent, even as Canada’s population grew by roughly one-third.​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​

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Self-employment accounted for roughly 16 per cent of total employment in Canada at the start of the 2000s but had fallen to 11 per cent by 2025.

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MEI Senior Fellow Charles Lammam, the report’s primary author, noted that the fall off in the number of job creators has accelerated over the past decade, partly due to unhelpful government policies.

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“I think it has to do with a change in public policy where you have more hostility toward entrepreneurs,” said Lammam.

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Lammam said the Trudeau government did lasting damage to entrepreneurship in Canada by hiking taxes on top earners and massively increasing the size of the federal public service, funnelling talent away from the private sector and into secure government jobs.

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He added that controversial changes to small business tax rules proposed in 2017 by then finance minister Bill Morneau further dampened the economic climate. While the changes were ultimately abandoned, the proposal alone sent a clear message to entrepreneurs.

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“People who ran small businesses were being publicly accused by Canada’s top economic official of exploiting loopholes and trying to dodge taxes,” said Lammam.

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Lammam said the Trudeau government’s late stage “flip flop” around raising the capital gains inclusion rate in 2024 and early 2025 harmed entrepreneurs even further.

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He added that, between these headline-grabbing flashpoints, Canada has seen a “steady but marked growth in regulations,” making it harder to get businesses off the ground.

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“It’s become an enormous burden for entrepreneurs to start businesses, hire people and expand in Canada,” sad Lammam.

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The report notes that the average Canadian business owner loses 32 working days a year to red tape, and pays over $10,200 per employee in annual compliance costs.

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Lammam added that some of the drop-off in Canadian entrepreneurship is attributable to the aging population, noting that people tend to start businesses in their 30s and 40s.

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He said he’s been happy to see a more business-friendly tone from the Carney government, but is worried about its focus on government-led initiatives.

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“A lot of the discussion so far has been around big projects, which are obviously important… but there’s really been nothing meaningful put forward to help drive entrepreneurship,” said Lammam.