Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Canada’s Public Sector Costs and Productivity Gap
Economy | Sep 2, 2025
Image: Projecting Federal Personnel Expenses (Aug 28, 2025, PBO)
PBO Warns of Rising Federal Labour Costs as Union Pressures Deepen Canada's Productivity Gap
On August 28, 2025, the Office of the Parliamentary Budget Officer published a report titled, 'Projecting Federal Personnel Expenses', projecting that personnel expenses will climb past $76B by 2029/30. While the report does not address productivity directly, rising labour costs combined with low private-sector investment risk deepening Canada’s productivity gap.
Federal Labour Costs Climb Past $76B
Parliamentary Budget Officer (PBO) Yves Giroux projects that total federal personnel spending to increase from $71.1B in 2024/25 to $76.2B by 2029/30. By the end of the period, the average cost per full-time equivalent (FTE) employee will reach $172,000, up from $136,345 in 2023/24. This includes salaries, pensions, overtime, severance, and extended health and disability benefits. Salaries and standard benefits alone account for about $139,000 of the cost per employee.
See: Canada’s Productivity Depends on Intangible Tech Adoption
FTEs are expected to climb to 442,000 by 2029/30, with 87% of the workers with permanent job status (highest since 2015). Personnel costs already represent the largest federal operating expense, creating direct pressure on the government’s commitment to both cap public service employment and deliver a balanced operating budget.
Productivity Gap With Global Peers
In 2023, Canada’s GDP per hour worked was $74.7 compared with $97.0 in the United States, highlighting the persistent productivity gap. Business R&D spending in Canada is only 1.0% of GDP which is far lower than the 2.6% of GDP invested in the United States. Higher education R&D in Canada accounts for about 0.6% of GDP, but spillover into private sector innovation remains limited.
Unionization, Oligopolies, and Job Action
When media outlets report more job action in Canada is on the horizon, it makes us wonder about the structure of Canada's labour force and it's impact on key metrics like productivity. Canada’s overall unionization rate is 30.4%, far higher than the US (10%) and UK (22%), which is of course highly concentrated in the public sector.
Large strikes, such as the 155,000 worker Public Service Alliance of Canada strike in 2023, spotlight the economic impact of government and quasi-government labour actions. The risk extends beyond the core federal workforce. Many of the most disruptive strikes occur in federally regulated oligopolies such as rail, ports, airlines, telecom, and banking. These sectors are nominally private but face little competition and operate under heavy federal oversight. As a result, labour disputes in these industries have a similar impact to public sector strikes, magnifying service bottlenecks in trade, transportation, and communications. Combined with a large public workforce, the exposure of Canada’s economy to union job action(s) is amplified.
See: [Event Oct 8]: Rotman Debate on Canada’s Oligopolies
While the PBO report does not attribute rising personnel costs directly to unions, collective bargaining settlements, job actions, and the limited competition in federally regulated industries all add further pressure on expenses and productivity.
Stability Has Defined Canada’s Model, But It's No Longer Enough
Global investors trust Canada's institutions, regulatory framework, and rule of law. These qualities explain why Canada consistently attracts foreign direct investment and maintains one of the world’s top competitiveness rankings despite low productivity.
But stability alone will not carry Canada through the next decade. The global order is shifting toward regions that pair institutional reliability with high productivity and innovation intensity. The United States is pulling ahead with business R&D at 2.6% of GDP and workforce productivity nearly 25% higher than Canada. The European Union is leveraging scale and industrial policy to anchor advanced manufacturing and clean energy. Asian economies are combining strong institutions with aggressive technology investment.
Canada cannot afford to define competitiveness only as political or financial stability. A system that prioritizes protecting incumbents in concentrated industries, expanding public payrolls, and absorbing rising labour costs may sustain trust, but it does not generate growth.
Without a structural shift toward business R&D, more open competition in regulated sectors, and productivity and innovation focused policy, Canada risks being left behind in a global economy where innovation (and not stability alone) determines long term growth and prosperity.
Implications for Fintech and Investment
The implications are strong for fintech and financial services. Canada’s federally regulated banking and telecom sectors function as oligopolies, shielding incumbents while limiting space for fintech entrants to scale. High labour costs and frequent disruptions in related regulated industries, such as rail and ports, add to the overall cost base and economic drag.
See: Canada’s Competition Plan Is Getting More Serious
At the same time, foreign direct investment continues to flow into resource and real estate sectors, while technology and financial innovation receive less priority. Without targeted policy that directs investment into sectors that can significantly boost productivity, Canadian fintechs will remain at a structural disadvantage compared to peers in the US, EU, and Asia.
Outlook
Canada's competitiveness outlook in the longer term hinges on opening competition in regulated sectors, strengthening private sector R&D, and ensuring that a greater share of FDI flows into innovation rich sectors like financial technology.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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