We did it. Look at our debt: only CAD$636,333,995,000 give or take a few million as interest accumulates. About 33% of our GDP. Canada survived the Great Recession better than almost every other country in the OECD. We didn’t slide into negative growth in GDP until the late 2008 and by summer of 2009 we were back in the saddle again, even if oil didn’t quite pony up to the astonishing levels reached prior to the crash. Canadians love to hate their banks, but they know darn well the Canadian financial system is one of the – if not the – world’s most solid. In other words, there was no subprime crisis pulling the rug out from housing and the banks north of the border. Jobs lost in the recession were recovered quickly compared to the US. This resulted in Canada having to use less deficit financing and add less debt to its books – and a debt clock that’s not so scary – right? Well, that depends on how you define Government or Public debt.
Those paltry 636 billion loonies are what is called Net Government Debt which conveniently does not include intra-governmental debt, the money owed between different branches of the government. When you include money owed by different government agencies to the government itself you get Gross Government Debt. According to IMF figures, what is Canada’s Gross Government Debt as a percentage of GDP? A not so tiny 85.6% in 2012. More than double Canada’s Net Government Debt. And the comparison with the US becomes a little less skewed. While Canada’s Net Government Debt – as a percentage of GDP – is less than half that of the US, its Gross Government Debt is about a fifth less than that of the US: 86 % vs.106%. Should Canada’s Debt Clock be given a major for cheating?
The Fraser Institute, on the other hand, uses what they call Net Direct Debt for all three levels of government, and come up with a total figure of CAD$1.2 trillion which is double the Debt Clock’s figure. The difference is mostly due to the inclusion of provincial and municipal debt. This is still Net Debt, which equals Gross Debt less government financial assets. In other words, it does not include government financial liabilities, money owed between government branches, as mentioned above. S1.2 trillion is about 62% of Canada’s current GDP, way more than the 33% that results from the Debt Clock’s National debt figures. But what really worries researchers at the Fraser Institute, and others who share their view, is Unfunded Liabilities. These are future obligations, mostly those related to OAS and Medicare. The problem is that when these programs were put in place in the ‘60s, the policy wonks who engineered them assumed that birth rates and general demographic trends prevalent at the time would persist. They were wrong, and Canada’s changing demographic profile means we have a shrinking share of working-age people paying for the programs used by an increasingly large share of retired people. And the problem is about to get worse as the bulk of baby boomers start retiring.
|End of Fiscal Year||Canadian Net Debt $Billions (Adjusted for inflation, 2013)||as % of Canadian GDP||Canada's GDP $Billions|
And that’s where the Debt Clock brings an uncomfortable reality to bear on the hard choices facing Canada’s policy makers over the next decade or two. According to the Debt Clock, Canada pays about CAD 15 billion in interest payments a year on its Net National Debt – the $ 633 billion figure. That’s half of what Canada spends annually on physicians, a little less than half of what is spent on drugs in the health care system, and about a fifth of what is spent on hospitals on an annual basis. As more of us reach retirement age over the next decade and demand more expensive health care, think about those 15 billion (and rising) dollars that we pay in interest payments. As retirement ages get pushed back several years and benefits cut back, imagine having CAD 15,000,000,000 added to the pot every year. And that’s only looking at one side of the ledger. You reduce deficits in Canada and balance the books by controlling medical spending, and that means patients both consuming health care a little more carefully, encouraged by user fees, and paying for more of what they consume. This lowers the medical spending deficit, which is what helped cause all those deficits that added to the debt. Rationing health care is never a pretty sight – especially if you live in remote rural regions where access to hospitals and health centers is limited at best – but a return to rationing is inevitable as that Debt continues to tick up. It is doubtful, however, that a clear majority of Canadians would endorse privatizing healthcare as a solution to the rising costs of health care in the country. So we have tougher rules to look forward to, and less benefits to enjoy. Oh, and by the way, that’s also part of the reason that the younger and healthier you are, the easier it is to migrate to Canada. And that’s also the reason it’s tougher to get health care benefits for your parents and grandparents who would like to join you in Canada. Want to remind yourself why? Take a look at Canada’s Debt Clock.
A History of Canada's National Debt 1940-2005