Canadian public debt

The Canadian government debt, commonly called the "public debt" or the "national debt", is the amount of money owed by the Government of Canada to holders of Canadian Treasury security. According to data from Statistics Canada, net debt (gross debt minus assets) as of March 2019 was approximately CAD$768 billion.[1] With a total GDP of approximately CAD$2.2 trillion,[2] Canada's overall net-debt/GDP ratio is about 34%. "Gross debt" is the national debt plus intragovernmental debt obligations or debt held by trust funds and without deduction of assets, the gross debt of the federal government amounted to CAD$1,182 billion in March 2019 (or ca. 53% of GDP).[1]

Public finance
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The annual government "deficit" is the difference between government receipts and spending which derives from the Canadian federal budget. If the spending is higher than receipts, the Canadian government debt will increase, otherwise it will decrease.

Revenue and spending
Main articles: Taxation in Canada and Canadian federal budget

The 2019 Canadian federal budget was presented on 19 March 2019 with a total projected revenue of $338.8 billion and projected expenditures of $355.6 billion, resulting in a projected deficit of $19.8 billion (ca. 0.9% of GDP).

History

Canada's federal debt grew steadily between 5% and 10% per year until 1975. For the next 12 years it grew on average over 20% per year. It surpassed $100 billion in 1981, $200 billion in 1985, $300 billion in 1988, $400 billion in 1992, and $500 billion in 1994. It peaked at $563 billion in 1997, before then declining to $458 billion by 2008.

With a recession, and an increase in federal spending from 2008, the federal debt grew by $5.8 billion in 2008–09. Large annual deficits from 2008 to 2013 has Canadian debt surpassing the $600 billion mark by November 2012, making it larger than the 1997 peak in absolute dollars (although far smaller in comparison to GDP).

End
of
Fiscal
Year		 Net Debt
$Billions[3]

(Adjusted for
inflation, 2017[4])

 as % of
GDP		 GDP
$Billions[5]
1962 14.8 (121.4)33.0%44.9
1971 20.3 (126.1)20.6%98.4
1981 91.9 (240.2)25.5%360.5
1991 377.7 (592.0)55.1%685.4
1997 562.9 (811.1)63.8%882.7
2002 511.9 (664.2)44.4%1,152.9
2008 457.6 (515.3)31.4%1,453.6
2009 463.7 (495.1)32.8%1,413.3
2010 519.1 (579.5)35.5%1,458.8
2011 551.4 (599.19)36.9%1,495.7
2012 583.6 (626.4)38.3%1,576.8
2013 609.4 (645.5) [6]37.4%1,608.5
2014 611.9 (634.78) [7]37.1%1,649.2
2015 612.3 (627.21) [7]31.0%1,975.2
2016 616.0 (623.17) [8]31.0%1,987.1
2017 631.9 (631.9) [9]31.2%2,025.3
2018 768 (751.3) 33.8% 2,222.7
Parliament Time Line
(end judged as the start of
1st session of
next Parliament)		 Prime Minister Total Increase
in Bank of Canada
Outstanding Bonds
($Billion CAD)		 Annual Increase
in Bank of Canada
Outstanding Bonds
($Billion CAD/Year)		 Notable Events
42nd Dec 2015 to Apr 2019 Justin Trudeau6418.2
41st Jun 2011 to Nov 2015 Stephen Harper5211.5
40th Nov 2008 to Jun 2011 Stephen Harper15361Great Recession

Foreign ownership

In 1960, 4% of the Canadian government debt was held by foreign investors.[10]

From 2009–2010 to 2013–2014, the amount of the Canadian's debt held by foreign investors passed from 15% to 27% with a peak at 30% in 2012–2013. Even if growing, this level is still lower than or comparable to most G7 countries in 2013-2014 (France, 64%, Germany, 62%, United States, 48%, Italy, 33%, United Kingdom, 29%, and Japan, 8%).[11][12]

Changes of debt: explanations

Rise of the national debt is mainly due and correlated to the rise of provincial debt. Indeed, between 2008 and 2015, federal debt increased by about 34%, whereas the provincial debt increased by almost 87%.

At the provincial level, progress on fiscal consolidation has been mixed, and contingent liabilities loom on the horizon. Quebec and British Columbia have made tangible progress in generating a surplus operating balance to reduce net debt. Ontario recently achieved a balanced operating budget, but announced in its 2018 budget its intention to run a deficit of ¾ percent of Ontario GDP over the next three years. Alberta is running a sizable operating deficit (about 2¾ percent of Alberta GDP) and its net debt has increased rapidly, albeit from a very low base.

The current account balance narrowed to 2.9 percent of GDP in 2017 (from 3.2 percent of GDP in 2016), driven by an improvement in the energy trade balance. The current account deficit has been largely financed by portfolio inflows. Overall, despite its current account deficit and rising external debt, Canada remains a net creditor to the rest of the world. The market value of the net international investment position was $400 billion at the end of 2017, almost doubling over the year as external assets showed significant valuation gains.[13]

With higher revenue collections and lower transfers to households, the federal government anticipated a reduction in the cumulative fiscal deficit over the next five years (FY2017/18 - FY2021/22) from 5 percent to 2¼ percent of GDP.

This implies a windfall gain of about 2¾ percent of GDP that can be used for new discretionary measures. With the output gap closing, the federal government has decided not to spend all the windfall gain, choosing instead to allocate half of the gain for new measures and the remainder to be used to gradually reduce the federal debt-to-GDP ratio from 30.4 percent of GDP in FY2017/18 to 28.4 percent of GDP in FY2022/23.

Actual January 2020 debt levels were reported by the Fraser Institute.[14]

Government objectives to reduce provinces' debt

According to an IMF report, British Columbia and Quebec should continue to comply with their current balanced operating budget rule. Ontario and Alberta should explore alternative operational rules to replace or support their existing operating budget rules to enhance the credibility of debt reduction as a medium-term fiscal objective. Such options should consider specific sources of fiscal imbalance and public investment plans in each province.

Moreover, provinces with high deficits or debt will pursue fiscal consolidation more forcefully. The authorities note that the medium-term federal fiscal plan appropriately balances the need to consolidate against the government's growth objectives.

Canada's government announced that provinces with high deficits or with debt, will restore fiscal discipline and take the lead in implementing more ambitious fiscal adjustments. At the federal level, the overall size of the planned adjustment seems to be appropriate. Nonetheless, if the economy over-performs, a larger portion of windfall gains could be used for deficit and debt reduction. A blogger on the Fraser Institute website advises promoting growth and reducing income inequalities to reduce the budget deficit.[15]

Risks that can impact national debt

First, a deterioration in the primary balance by about one percent of GDP would raise the gross debt-to-GDP ratio by about 2 percentage points over the projection period. The sovereign risk premium is assumed to increase by 25 basis points for each one percent of GDP deterioration in the primary balance, resulting in higher gross financing needs of 1-2 percentage points of GDP compared to the baseline.

Growth shock, a one standard deviation shock to growth in 2019 and 2020 will reduce real GDP growth rates to about 0-0.2 percent. This would lead to a deterioration in the primary balance, with the deficit peaking at 2.3 percent in 2020. The gross debt-to-GDP ratio will revert to nearly 90 percent of GDP in 2019, but would return to a downward path over the projection period, as GDP growth recovers. Gross financing needs will also rise faster until 2020, about 2-3 percentage points higher than the baseline.

A devaluation of the Canadian dollars can lead to increasing of the debt. However, given that about 90 percent of general government outstanding marketable debt instruments are in Canadian dollars, the fiscal impact of an exchange rate shock is minimal, even with a substantial exchange rate depreciation of about 23 percent.[16]

Debt comparison with other countries

Canada has some fiscal space, general government gross debt is high compared to its triple A-rated peers (in average 40%).

Canada's general government gross debt is 89.7 percent of GDP. If accounts payable are excluded to make it internationally comparable, gross debt falls to just below 70 percent of GDP, but this is still high among economies with AAA ratings. Nonetheless, the general government holds sizeable financial assets (about 62 percent of GDP), which includes a broad range of assets (currency and deposits, debt securities, loans, equity and investment fund shares, and accounts receivable), and net debt stood at 27.8 percent of GDP in 2017. At the federal level, gross debt is considerably lower at 38 percent of GDP.

There are also accounting issues for international comparisons. Indeed, Canada's general government debt includes sizeable accounts payable, which many advanced economies do not report. If accounts payable were excluded, general government debt would be about 69 percent of GDP in 2017.

Public debt increased in recent years, reflecting the government's policy to fund public sector employee pension plans by issuing new debt. General government debt as reported here does not include unfunded pension liabilities. Many advanced economies do not report unfunded pension liabilities and as such they are excluded from measures of public sector debt to allow for consistent international comparison. General government debt, including unfunded pension liabilities, would be about 105 percent of GDP on a gross basis.[17]

Future expectations of the debt

Canadian's government announced an increase of the fiscal pressure over the long term. Especially a growth of health care spending to accelerate from 3% to 4.5% within a 10-20-year time-frame. As a result, net debt to GDP ratios are expected to start accelerating by the mid-2020s.

Interest rate and growth differentials are expected to be favorable in the near term, with real GDP growth exceeding real interest rates until 2021, contributing to a reduction in the gross debt to GDP ratio. However, from 2022 onward, real interest rates are expected to exceed real GDP growth, putting upward pressure on debt dynamics.[18]

Debt held by Canadian governments

The Royal Bank of Canada publishes records of federal and provincial debt figures going back to 1981.[19]

A comparison of the change in debt-to-GDP ratios of the provinces over a nine-year period, as reported by the Fraser Institute.[20]

Government Percent of Debt to GDP for the Fiscal Year 2007/2008 Percent of Debt to GDP for the Fiscal Year 2016/2017 Percent Increase between 2007-2017
British Columbia 12.1 15.1 25.2
Alberta -13.4 3.3 —
Saskatchewan 11.2 11.5 2.9
Manitoba 21.2 34.1 60.7
Ontario 26 40.2 54.5
Quebec 40.6 48.1 18.4
New Brunswick 25 42.4 69.8
Nova Scotia 35.7 36.9 3.4
Prince Edward Island 29.1 34.7 19.1
Newfoundland & Labrador 35.1 49.5 41.3
Federal 32.8 36.1 10.1
Combined Federal & Provincial 53 67.5 24.5

Calculating and projecting the debt

In 2002–2003, Canada changed its calculation for net debt. Until then, net debt was defined as the total liabilities minus total assets. Now, it is the total liabilities minus financial assets. The government prefers the concept of "accumulated deficit," which corresponds to the old definition of net debt.

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See also

General:

  • Government budget deficit
  • Public debt

International:

  • List of sovereign states by public debt

Notes

    References
    1. "Central government debt". www150.statcan.gc.ca. Retrieved 15 September 2019.
    2. "Gross domestic product, income-based, quarterly (x 1,000,000)". www150.statcan.gc.ca. Retrieved 23 September 2019.
    3. Canada's Debt History Archived 26 October 2009 at the Wayback Machine Canadian Taxpayers Foundation
    4. Inflation Calculator Bank of Canada
    5. World Bank data
    6. http://www.fin.gc.ca/afr-rfa/2014/report-rapport-eng.asp
    7. http://www.fin.gc.ca/afr-rfa/2015/report-rapport-eng.asp
    8. http://www.fin.gc.ca/afr-rfa/2017/report-rapport-eng.asp
    9. http://www.fin.gc.ca/afr-rfa/2018/report-rapport-eng.asp
    10. Safaraian, A.E. The Hegemony of International Business, 1945–1970, Volume IV: Foreign Ownership of Canadian Industry. New York: Routledge, 1973. 12.
    11. Department of Finance Canada, Debt Management Report 2011–2012, http://www.fin.gc.ca/dtman/2011-2012/dmr-rgd1201-eng.asp#Toc340732968
    12. Department of Finance Canada, Debt Management Report 2013–2014, http://www.fin.gc.ca/dtman/2013-2014/dmr-rgd1401-eng.asp#toc12
    13. "Déficit stable, mais dette en hausse pour le gouvernement fédéral". Le Devoir (in French). Retrieved 1 May 2019.
    14. Fuss, Jake; Palacios, Milagros (January 2020), The Growing Debt Burden for Canadians (PDF), Fraser Institute Research Bulletins, Fraser Institute, p. 11, ISSN 2291-8620
    15. "BLOG: Government debt—a snapshot of each province". Fraser Institute. 29 October 2018. Retrieved 1 May 2019.
    16. "Canada : 2018 Article IV Consultation-Press-Release; Staff Report; and Statement by the Executive Director for Canada". IMF. Retrieved 1 May 2019.
    17. Canada, Service (30 August 2016). "Debt and borrowing". aem. Retrieved 1 May 2019.
    18. "Canada : 2018 Article IV Consultation-Press-Release; Staff Report; and Statement by the Executive Director for Canada". IMF. Retrieved 1 May 2019.
    19. "Canadian Federal and Provincial Fiscal Tables" (PDF). Economic Reports. Royal Bank of Canada. Archived from the original (PDF) on 17 November 2017. Retrieved 17 March 2018.
    20. Lammam, Charles; MacIntyre, Hugh; Ren, Feixue; Hasan, Sazid (January 2017), The Cost of Government Debt in Canada, 2017 (PDF), Fraser Institute Research Bulletins, Fraser Institute, p. 16, ISSN 2291-8620
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