Canada’s $1-trillion debt baby

government debt immigration
By Terence Corcoran of National Post

The Tory commitment to ‘eliminate’ Canada’s total net debt by 2021 now looks absurd

Debt is good, even for governments. But it depends on the kind of debt, what it’s used for and what the financial plan is for getting out of debt. Finance Minister Jim Flaherty’s latest revelations on the future of Ottawa’s annual deficits do not fill one with confidence that the federal government has a firm grip on the floodgates that control the level of debt in Canada, not all of which is going to be doing much good for the economy.

By 2015, said Mr. Flaherty in his surprise fiscal update on Thursday, Ottawa will have pretty well tamed the beast. He said the annual deficit in 2015 will be only be about $5-billion, “a very modest number to deal with.”

The trouble with very modest numbers in the $5-billion range is that they tend to pop up without notice on a regular basis in government operations and then quickly, like gurgling slimy creatures in the movies, turn into gigantic long-term problems that are not so easy to handle. The next thing you know, you’re dealing with real money.

For instance, the federal deficit for this year, originally estimated at $50-billion, is now a modest 10% higher at $55-billion. Going forward, Mr. Flaherty laid out a slightly revised series of deficits that would still, under the best of circumstances, run the national debt up by $170-billion by 2015. That would bring Ottawa’s total net debt to $628-billion, a record in nominal dollars and about $19,000 per capita — compared with $608-billion or $20,000 per capital in 1997, the peak year for federal debt in current dollars. The numbers are different in constant deflated dollars, but not that different. The 1997 figure would be equivalent to $24,000 today. For taxpayers, having to carry a debt burden of $20,000 today isn’t a whole lot better than $24,000 in 1997.

That’s not progress, especially from a government that in 2006 boldly committed to “eliminating total government net debt.”

Ottawa isn’t the only player in the all-new national debt game. The provinces and local governments are also running up sizable annual deficits. Ontario is heading for $18-billion this year, and a succession of additional deficits in years to come. British Columbia, Alberta, Quebec, New Brunswick, Newfoundland — they’re all riding deficits that total about $31-billion this year alone. Assuming they follow the same fiscal track Ottawa is on, Canada’s provinces are likely to add close to $100-billion in total new net debt over the next five years.

These are rough numbers, to be sure, in that they don’t take in other elements of net debt calculation. But the trend is unmistakable. At the end of 2008, the net debt of all the provinces stood at $274-billion. If they collectively add $100-billion over the next five years, as seems more than possible, total provincial net debt will rise to about $375-billion by the end of 2015. Add that number to the projected federal net debt of $628-billion by 2015, and Canada is suddenly looking at $1-trillion in debt, or about $30,000 per man, woman and child.

The numbers don’t look quite so bad when measured against the size of the economy. At $1-trillion in 2015, Canada’s net debt to GDP ratio would be about 57.5%. That’s a long way from the 90% levels Canada hit in the late 1990s. But as the chart above shows, Canada’s track to lower debt has been drastically reversed and is now on a new upward curve. As Canadians know from experience, turning annual government deficits into balanced budgets and surpluses is a painful process that implies big cuts in government spending and higher tax levels. Somebody has to repay the debt and cover the interest costs.

Back in 2006, Mr. Flaherty touted his government’s commitment to “eliminate” Canada’s total net government debt. The target date was 2021. To get there technically required fulfilling two different objectives. First, the combined federal-provincial debt, now heading for $1-trillion, had to be down to about $680-billion by 2021. That objective now looks absurd and is wildly beyond reach.

Full Article at National Post

Reader Comment:

Most countries in the free world have major un funded liabilities that I am sure one day soon will collapse the way democracy functions (2017). Never mind the National Debt, Canada has an excess of 2 trillion in unfunded liabilities that have to be paid for introduced mostly back in the 70’s. The governments of the 70’s used what is called deferral payout plans and allowed the people of those times to reap benefits without having to pay for them. But to be fair this has happened all over the free world around the same time. Why you ask? Well two reasons, 1) It was a tool to help fight off the spread of communism around the world. It was thought that if people seen a continuous rising standard of living that would promote freedom over the evils of communism. Sadly during the 60’s to the early 80’s the standard of living was artificially propped up by eliminating expenses the general population would normally have such as health care, education, housing and even retirement planing. By allowing people to keep most the money they worked for and use it how they seen fit to (Food, Trips, Consumer goods and savings) Thus people were able to buy multiple cars, houses trips every year and save etc..