As the Canadian economy continues to struggle, extending a trend of weak growth for nearly two decades, Toronto plays a central role. Given its size and economic weight, the city's performance is critical to understanding Canada's economic challenges.
Toronto's Economic Significance
Toronto, specifically the Toronto Census Metropolitan Area, accounts for nearly one-fifth of Canada's population and economy. For context, its share of the national population is comparable to the combined shares of California and New York in the United States. Despite this, discussions about Canada's poor economic growth over the past 20 years often overlook Toronto, focusing instead on manufacturing declines in southwestern Ontario or oil price drops. This oversight is a mistake.
Median Household Income Stagnation
Median pre-tax household income growth is a key indicator of economic well-being for middle-income Canadians. From 2000 to 2023, Toronto's median pre-tax household income rose by only 2%, one of the weakest growth rates in Canada. Consequently, Toronto fell from 11th among the 42 largest metropolitan areas in 2000 to 30th in 2023, falling below the national average.
Persistently High Unemployment
Toronto's unemployment rate has been consistently above provincial and national averages for decades. In 2024, it stood at 8%, the third-highest among major Canadian metropolitan areas and significantly higher than the averages for all major metro areas (5.9%) and all major Ontario metro areas (6.3%).
National Implications
These gloomy statistics affect millions of Toronto residents, but they also have nationwide consequences. Large metropolitan areas typically drive national productivity and income growth. For Canada to reach its full potential, Toronto must be an engine of economic growth, which it has not been in recent years.
As Canada's largest metropolitan economy, Toronto contributes significantly to federal tax revenues. Stronger income growth in Toronto would expand the national tax base, enhancing the federal government's ability to fund services like health care or reduce pressure on taxpayers elsewhere. Additionally, higher incomes in Toronto boost demand for goods and services produced across the country due to interprovincial trade. Thus, sustained weakness in Toronto's economy has national repercussions.
Policy Solutions
Addressing Toronto's economic problems requires action from all levels of government. The Ontario government, led by Premier Doug Ford, could play a significant role by following through on promises to reduce personal and business taxes, making the city more attractive for investment. However, the latest budget failed to deliver such measures.
For over two decades, Canada's economic performance has ranged from weak to terrible, and Toronto is no exception. The weak economic performance of Canada's largest city remains a national problem and a key part of the country's dismal growth story.
Ben Eisen and Nathaniel Li are analysts at the Fraser Institute.
