Studying the Fiscal Impact of Immigration to Canada

by Pablo Huarez Senior Executive

Every country has its own rules and regulations as far as immigration is concerned. Canada, which is one of the most popular destinations in the world, is seeing a few reforms in its immigration rules. The types of immigrants vary a lot. However, the two most commonly seen immigrants to Canada are those who are dependents or family members of professionals working in Canada and those who have been employed by Canadian businesses or companies, owing to their skillset. These immigrants, who largely add to the pool of skilled workers in the country, bringing with them a bit of their own culture, have a great effect on the country.

The fiscal impact of immigration to Canada has been the subject of many different studies. Considering that Canada itself offers assistance and spends on refugees, one can look at it from various viewpoints. If the immigrants are highly educated and pay more taxes than the country actually spends on them, the fiscal impact of immigration is positive. Similarly, when the spending of tax dollars is higher than the income, the fiscal impact is in the negative. There are illegal immigrants, who sometimes lack in education but receive benefits due to their children, thus creating funding issues in some cases. The number of refugees as well as temporary workers arriving at Canada is in the tune of thousands.

Canada is a very interesting case in the world considering that a few years ago, a huge fraction, close to 1/5th, of Canadians weren't born in Canada. Besides, the population growth contributed by immigrants to Canada is a big number too. The increase in number of immigrants lowers domestic wages because of demand and supply. Some feel there is a negative fiscal impact, because of the flexibility in wages and outsourcing of some of the jobs to foreign nationals imported to fill vacancies, which cause lower productivity.

Replacement migration though is another interesting case. Immigrations to Canada, some feel, should be welcomed, largely because of the aging population in Canada. Although, imported skilled workers positively benefit the labor market, it could work both ways in Canada. The effect could be negative if the immigrants find it hard to adapt and blend into the mainstream. That is why certain reforms have been introduced including the point based system that determines the outcome of immigration applications.

The educational background, age and language proficiency in French and English have become important factors for the success of the immigration application. The expected fiscal impact from immigrants who have an impressive score is positive. One of the most subtle but important factors influencing fiscal impact is the presence of a community. Low skill workers in a large community attract more such immigrants. Similarly, presence of relatives is seen as detrimental to productivity. In both cases, the earnings drop down and the fiscal impact is negative. Immigrants doing poorly might sometimes have a bad fiscal impact on the economy of the country. Although, the financial growth of immigrants is lower compared to the native population, the diversity can help Canada do better at international trade.