While the US Hustles, Canada Is Losing

We talk a lot about the American entrepreneurial dream, and how small businesses are on the rise across the country. (Yay, USA!) 🇺🇸

Unfortunately for our neighbours up North, a very different story has been unfolding — one that deserves a lot more attention.

Per an article from The Hub, Canada has been in the middle of what experts are now officially calling an "entrepreneurial drought" — and the numbers behind it are pretty concerning. 🇨🇦 😬

According to recent data, the number of self-employed Canadians with paid help (we’re talking about the businesses most likely to scale, hire, and drive GDP… etc) peaked at around 867,000 in 2005.

Sadly, by 2025, that number had dropped to 716,000, an 18% decline, despite the country's population growing by over 9 million people in that same period. 😬

To put this a different way, back in 2005, about one in 37 Canadians was an entrepreneur. By 2025, that had fallen to one in 58.

And the biggest loser of it happens to be Quebec, with its self-employed with paid staff dropping from 194,000 to 122,000 — a decline of more than a third.

The bigger picture is just as bad.

Self-employment as a share of total employment has fallen from 16.1% in 2000 to 12.9% in 2025 — the lowest in decades. And new business creation has also taken a hit, sitting at roughly half the rate Canada achieved in the early 1980s. 📉

Overall, Canada has now recorded six consecutive quarters where more businesses are closing than opening — something that almost never happens, even during recessions, according to Dan Kelly, president of the Canadian Federation of Independent Business (CFIB).

And to make things worse? More than half of current small business owners say they would not recommend starting a business right now. 🚩

This didn't happen overnight, and it definitely didn't happen by accident.

Researchers and economists point to three overlapping culprits, largely the tax policy, but also government programs that punish private investment, and regulations that make it harder to start something new.

The tax piece, though, is particularly painful.

James Brander, a business professor at UBC, put it pretty directly, noting that, "Probably the most important reason for declining entrepreneurial activity is the increase in the top marginal tax rate on personal income. The top marginal rate, inclusive of federal and provincial taxes, exceeds 50 percent in most provinces." 🤯

Once you're taxed more than half of every dollar you earn above a certain threshold, the risk-reward calculation of starting a business starts looking… let’s just say… not great. For a small business that probably doesn’t have much to start with, it’s not exactly a risk worth taking.

And entrepreneurs, unlike most workers, actually have options — they can relocate, restructure, or simply decide it's not worth it at all. 😭

Canadian venture capital as a share of GDP has also fallen sharply, dropping from nearly 0.5% in 2021 to just 0.2% in 2024 — meaning less private capital is available for the businesses that do try to get off the ground.

Among G7 nations, Canada recorded zero growth in business entries from 2015 to 2024, which (interestingly enough) is a stat it shares only with Italy. 🇮🇹

Dan Kelly from CFIB also flagged something a bit more concerning. Specifically, the messaging.

Back in 2017, the government publicly called business owners "tax cheats" during a policy fight, and framed entrepreneurship as something to be taxed rather than celebrated. "The takeaway for Canadian business owners has been that the government views entrepreneurship as a societal negative," he said.

Which, as you can imagine, is a tough culture to build a startup in. 😔

Fortunately, there may be a light at the end of the tunnel — sort of.

With the Carney government now in office, there's cautious optimism that the policy environment might start to shift.

For example, the latest spring fiscal update included a few positives — a cut to the Canada Pension Plan payroll tax, some focus on trades training, and a commitment to employee ownership trusts.

That said, nearly two-thirds of small businesses still say they feel unsupported by their provincial governments, and only 3% strongly believe their government have any clue about what entrepreneurship really is about. 😅

#sad

Kelly elaborated with, "The lack of any progress on taxes like the small business corporate rate, or the overall regulatory environment, will not help us move the dial."

So, even a few immediate tweaks aren't going to fix a two-decade decline.

What Canada actually needs, according to the MEI report, is a fundamental shift in how the country thinks about entrepreneurship — not incremental adjustments, but a real rethink of the tax, regulatory, and capital environment that founders operate in. 🔄

After all, the talent is there, and the ambition is there.

What's missing is an environment that makes taking the risk actually worth it. 🍁