Canada’s national debt, according to the Business Council of Canada, has more than doubled over the last three years. This is due largely to temporary supports for the population launched during the pandemic. The ongoing numbers, however, remain concerning.
The Parliamentary Budget Office, in its October 2023 report, projects that the deficit will increase from $38.7 billion in 2022-23 to $46.5 billion in 2023-24. The PBO is projecting the deficit to decline in 2024-25 and onwards, “assuming no new measure[s] are introduced, and existing temporary measures sunset as scheduled.” But the Liberal government is adding new expenditures regularly, the massive battery plant subsidies, for example, and very likely the pharmacare program promised in the Supply and Confidence Agreement with the NDP. New spending, no doubt, will continue to be introduced.
The PBO’s October 2023-24 projection already shows an increase of $6.4 billion in the government’s budgetary deficit compared to that presented in the Budget.
Ahead of the government’s Fall Economic Statement, Goldy Hyder, the president of the BCC, wrote an open letter to the finance minister. He expresses concerns with, “significant geopolitical uncertainty abroad and a deterioration of economic conditions here at home.” He also warns of persistent inflation, high interest rates and declining productivity. Rising bond yields, Hyder adds, show that the market is not anticipating interest rate cuts any time soon and that means debt servicing costs will remain more prohibitive than forecast in the budget. Hyder suggests new spending in this environment is unwise.
Continuing deficits, of course, result in relentless expansion of debt. Federal debt in 2022-23 is estimated at $1.169 trillion. The PBO projects it to grow to $1.311 trillion by 2028-2029. Federal debt as a percentage of GDP will increase to 42.6% in 2023-24, and gradually decline to 37.8% over five years. Similarly, the PBO expects debt service charges relative to revenues to peak at 12% in 2023-24 and then slowly decline to 11%, much higher than the pre-pandemic low of 8.3%. The limited reductions in both ratios are again predicated on no new spending measures, which is highly unlikely under the Liberals.
Hyder comments on new spending being considered by the government in housing and pharmacare. “As valuable and important as the contemplated measures may be, funding them with borrowed money is ill-advised and will only exacerbate the precarity of our finances.”
It is difficult to dispute this. Excessive debt is risky at any time, but it is even more perilous in a time of economic uncertainty. Amidst rising expenditures and higher interest rates, a stalling economy will increasingly struggle to service the ever larger debt levels. Deficits also increase the risk of continuing inflation and longer periods of high interest rates. To spend only what the government can afford will allow Canada to continue to service its debts and to support social programs and essential services, without burdening future generations with more debt.
Hyder recommends a “new and credible” fiscal anchor (a budgetary limit or constraint). Debt service costs, he asserts, must not exceed 10% of revenues. More deficit-funded spending and debt, he observes, will compel future governments to cut spending and increase taxes. “It will lead to a weakened economy with considerable uncertainty for businesses looking to invest, hire and grow in Canada.” The president of BCC calls attention to a recent poll that, not coincidentally, shows 65% of Canadians surveyed believe the next generation will suffer a lower standard of living.
Pierre Poilievre wrote in 2022, “The solution now is clear: cap spending with a law that ministers find a dollar of savings for each new dollar of spending.” He has repeated this proposal several times in 2023 as well. It could create other problems, but it will save Canada from a future debt crisis – like the one in which the country was entangled in the 1990s.
The Liberal government of the day, led by PM Jean Chretien and finance minister Paul Martin, found it essential to remedy that crisis, created by decades of Liberal and Conservative budgetary deficits, with severe budget cuts, producing significant pain for Canadians. The current Liberal government, led by PM Justin Trudeau and finance minister Chrystia Freeland, have managed to lead us back toward such a predicament in just eight years, but possess neither the courage nor the foresight to correct their path.
Bruce W Uzelman
I attended the University of Saskatchewan in Saskatoon.I obtained a Bachelor of Arts, Advanced with majors in Economics and Political Science in 1982.
I have maintained a healthy interest in politics throughout my adult years, and wish to put that and my research skills to work as a political columnist.