Canada has long welcomed large numbers of immigrants to address labor shortages caused by its aging population, giving it a competitive advantage in the global job market. However, it is now shifting towards reducing this policy.

After registering record population increases that have put pressure on the housing market, labor market, and public services, Canada announced on October 24 a plan to significantly reduce acceptance rates. The government of Prime Minister Justin Trudeau aims to cut the numbers of international students and foreign workers, alongside reducing the annual target for permanent resident admissions, a step that was not on the table just a year ago.

What are the reasons for this shift?

The influx of immigrants has made Canada one of the fastest-growing countries in the world, with a growth rate of about 3% annually. This rapid growth in arrivals, equivalent to adding the population of San Diego to a slightly more populous country than California in just over a year, has exacerbated housing shortages, increased rental prices, and heightened pressure on public services, alongside rising unemployment rates.

Canadians have long viewed newcomers, who are often younger with higher education, as key contributors to a country struggling with low population density and rapid aging. Yet opinions began to change with the increase in arrivals, as a long-term survey showed that the majority of Canadians now believe for the first time since 1998 that immigration rates have become too high. At the same time, Trudeau's popularity has sharply declined amid calls from within his Liberal party for him to step down, while polls show the Conservative opposition gaining ground ahead of the expected elections in October 2025.

What was the situation like in Canada previously?

For decades, the shared land border between Canada and the United States and relatively organized immigration policies protected Canada from large flows of immigrants. These tightly controlled policies, which include setting clear annual immigration targets, played a significant role in promoting a positive view of immigration in Canada compared to many other countries.

The welcome of newcomers stemmed from a strong belief that immigration has numerous benefits, but following the COVID-19 pandemic, this belief began to wane, along with the robust immigration system. Canada experienced record inflows of immigrants due to eased travel restrictions and policies aimed at addressing labor shortages by employing foreign workers, alongside the growing desire of the expanding middle classes in developing countries to immigrate.

What is the impact of immigration on the Canadian economy?

As the economy reopened, high levels of immigration helped support key sectors such as housing, retail, and banking, as Canada attracted new labor in specific areas where it was needed, aiding in a faster economic recovery post-pandemic. Canada’s GDP growth outpaced that of many other advanced democracies. During the interest rate hike cycle adopted by the Bank of Canada, the rapid population growth supported consumer spending and helped the country avoid falling into economic recession despite being one of the countries with some of the most indebted households in the world.

However, the accelerated pace of arrivals quickly exceeded Canada’s ability to absorb them, leading to a decline in per capita GDP, an indicator of living standards, for several consecutive quarters. Young people, who constitute a key electoral demographic, alongside new immigrants, began to bear the brunt of the oversaturated labor market.

What went wrong?

To understand the Canadian immigration system simply, it can be envisioned as two main pathways for newcomers with a narrow channel linking them. The first pathway is dedicated to permanent residents and is strictly managed, where authorities assess applicants based on criteria including age, education, work experience, and language proficiency. Only those with the highest scores are selected, making it the main source of economic immigrants to Canada and a path to future citizenship, as many permanent residents can obtain citizenship after three years of residency.

The second pathway resembles a pool and includes temporary residents, with the flow of arrivals varying based on the numbers of students, workers, and asylum seekers. For decades, this pathway was less significant for immigrants and contributed only a small fraction to population growth. However, since mid-2022, this pathway has expanded significantly to bring in a larger number of newcomers compared to the main pathway. Loosening foreign labor hiring rules amidst a labor shortage crisis increased the number of arrivals, while many colleges and companies exploited this system to attract more newcomers from abroad.

Thanks to the points system, candidates can gain permanent residency through additional points if they have study or work experience in Canada. Thus, many immigrants seeking to enhance their acceptance chances turn to the temporary resident pathway as a means of obtaining permanent residency in the country.

What is Justin Trudeau's government trying to achieve?

The government is now seeking to take strict steps to limit flows of temporary residents, restricting the capacity to expand and imposing additional entry requirements. The plan aims to reduce the number of arrivals by over 20% over the next three years, with key measures including capping the number of student visas and restricting the use of foreign labor.

On October 24, Immigration Minister Marc Miller announced a specific target for the numbers of temporary residents for the first time, expecting a decline of about 446,000 people in 2025 and 2026, before a modest increase of 17,400 people in 2027, compared to an increase of 800,000 in 2023.

He also clarified that Canada would reduce the number of accepted permanent residents by about 20% next year, amounting to around 395,000, compared to the expected level of 485,000 this year, with a continued reduction of 4% annually until 2027.

Overall, this plan means that Canada’s population will decline by 0.2% in the next two years, before experiencing modest growth of 0.8% in 2027. This compares to an annual growth rate of 3% in the second quarter of this year, one of the fastest rates globally. This decline represents the first in Canada’s population since data collection began in the early 1950s.

The decision to lower the permanent residency target came about a year after Marc Miller stated that he "saw no possibility of lowering this target."

What are the expected outcomes of these policies?

In the long term, strict tightening of the immigration system may reduce Canada’s population growth rate by half, bringing it closer to historical averages. However, there are risks in overly reducing it, especially since immigration accounts for almost all the increase in the labor force, and any shortage of new labor could harm the economy and reignite inflation.