The Growth Project

This is a part of RBC Thought Leadership and Eurasia Group’s joint report

An over-correction to the recent surge in irregular immigration is squeezing employers, hammering colleges and universities, and threatening to delay a new wave of resource projects and infrastructure builds—at the same time as Canada is nearing a demographic cliff.

Canadian public and political sentiment toward immigration is increasingly negative. But the sentiment is running contrary to the country’s needs: Canada’s aging population is facing declining fertility rates, leaving immigration central to the expansion of the skilled workforce. Cutting back on immigration drastically could lead to a rapid dip in population, hurting efforts to maintain living standards, drive economic and business activity and meet near-term economic ambitions.

The Mark Carney government’s plan to clamp down on immigration comes after years of expansionary policy. Temporary residents increased beyond capacity during Justin Trudeau’s decade-long tenure that began in 2015. Housing infrastructure and community services were overloaded, and productivity declined as temporary low-wage workers removed the incentive from some businesses to invest in technology, training or equipment. Targets for new temporary residents, including students, are down by over 550,000 in 2026 compared to 2024. And permanent resident targets are down by over 100,000 from 2024 admissions. Even with these reductions, Canadians feel immigration levels are too high.  

The government crackdown may face challenges advancing its broader agenda. The 2025 federal budget allocates billions for nation-building projects to jumpstart the economy and insulate Canada from geopolitical threats. It dedicates funding to scaling Canadian businesses, recognizing larger firms create more jobs and contribute disproportionately to economic growth and productivity. And the budget seeks to capitalize on major opportunities like growing Canada’s space economy—specifically launch capabilities.

Making good on these investments, and seizing opportunities before the country, will rely on a skilled workforce—without a smarter immigration strategy, Canada has little hope of attracting that skilled labour. Economic immigrants bring skills experience, innovation, and financial investments. They will be essential to addressing labour shortages in critical sectors like healthcare, technology, skilled trades, and agriculture, as they have done in the past. Global talent will also be key to scaling Canadian companies in key sectors and avoiding population declines in rural parts of the country.

Attracting the talent Canada needs will also be increasingly difficult given growing global competition for talent. By some estimates, the global population is set to peak by mid-2080 and is already shrinking in Europe and China. Other countries will be rolling out the red carpet to prospective citizens as their domestic populations shrink. Canada’s approach to immigration needs to be as much about recruiting as it is selecting.

Competing globally to recruit the best and brightest will require a strong international brand, which recent policy volatility is jeopardizing. Changes to Canada’s immigration point system in recent years have created back doors and side doors, making the system less predictable and transparent—deterring the people needed to build a strong economy from applying. The system has been described as a “lottery” depending less on merit and more on timing and has been criticized for long processing times—over two years for those entering through the entrepreneurial program.

Even if Canada addresses these recruitment challenges, there is little guarantee the newcomers will stay. New research shows one in five immigrants leave within 25 years of arriving in Canada, and the most highly skilled are the biggest flight risks.  Whether newcomer or Canadian-born, many of Canada’s graduates from degree programs in science, technology, engineering and math (STEM) disciplines, emigrate after graduation, primarily to the U.S. And Canada’s three largest startup cities—Toronto, Vancouver, Montreal—lag far behind global leaders, pulling in less than 5% of the venture capital investment that flows into places like San Francisco, New York and Boston.

Attracting and retaining the best and brightest will require more transparent, predictable pathways, faster processing times and investment in infrastructure and services—like housing and health care—to ensure a high standard of living. With a steady inflow of talent, Canada will be better placed to grow businesses and invest in the innovation needed to retain top talent.

In addition to attracting world-class talent, Canada can train for it. International students represent an important opportunity that Canada should be careful not to overlook. Foreign students who graduate from reputable programs in in-demand fields offer needed skills and recognized credentials, making them great candidates for permanent residency. They are also more likely to stay in the country and see higher earnings than immigrants who pursue permanent residency directly. That is, of course, if they come in the first place.

The latest federal budget cut international student numbers drastically for the next two years, by almost half of 2025’s target. Even at its new low, the target is unlikely to be met. International applications have declined significantly as frequent changes to post-graduate work permit eligibility have prospective students doubting whether their studies will provide a path to staying in Canada. The new system is also clunky and cumbersome for applicants. It features new hoops that students and institutions must jump through, namely Provincial Attestation Letters to enforce annual permit caps.

Canada can re-open student pathways and make them appealing again by rebuilding its brand as a country that welcomes foreign students and offers transparent immigration pathways after graduation. With guardrails to ensure colleges and universities maintain integrity, Canada could focus on welcoming students who pursue credentials (e.g., diplomas, degrees) in fields of study (e.g., STEM) that yield positive outcomes after graduation, including higher transition rates to permanent residency. (Rather than constantly revising a list of specific programs eligible for work permits after graduation—feeding into an image of instability).

As the global population contracts and competition for immigration grows, reactive policies hurt Canada’s brand as a stable and desirable destination. Many Canadians acknowledge the need for immigration to fill labour market gaps, and most concerns about immigration are tied to capacity rather than culture or ideology. A revised immigration strategy with stable targets for both temporary and permanent residents, an international brand strategy, and investments in infrastructure and services can set Canada on a positive course.