Canadian public debt

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).

Canadian general consolidated government debt as a share of GDP exceeded 100% during the Great Depression of the 1930s and reached 150% following World War II.  The ratio fell until the 1970s, and then rose to over 100% in the mid-1990s.[12]

A 1995 editorial in the Wall Street Journal said Canada might need an International Monetary Fund bailout and called Canada “an honorary member of the Third World.”[13] Successive years of federal budget deficits in the 1980s and early 1990s, and a rising debt to GDP ratio, led to concerns about debt sustainability.  By the mid-1990s the government of newly-elected Prime Minister Jean Chretien undertook a fiscal consolidation that was achieved mainly by big spending reductions.  The ratio of spending cuts to tax hikes was seven-to-one.  Tax revenues could not be boosted by much partly because Canada’s top marginal income tax rate was already around 55%.[14]

The federal government’s gross debt to GDP ratio fell from the mid-1990s before rising briefly following the financial crisis of 2008-09.  It then resumed a downward trend until the pandemic-related spike in 2020.  Provincial government gross debt as a share of GDP has increased steadily since the 1960s, and today provincial governments account for more debt than the federal government.[15]

*Federal Debt is also called the accumulated deficit and is equal to total liabilities minus financial assets minus non-financial assets.[23]

Two major risks to federal government debt are identified by Don Drummond, a former Finance Department assistant deputy minister.  The first risk is that slow economic growth will reduce government tax revenue and increase the ratio of debt to GDP.  Second, Drummond argues the interest rate on public debt will almost certainly rise from the current level which is by far the lowest in post-War experience.  With federal government debt crossing the 1 trillion-dollar mark, every one percentage point rise in the effective interest rate adds more than $10 billion per year to the federal deficit.[27]

The International Monetary Fund views exchange rate risk as low for Canada because 90% of general government outstanding marketable debt instruments are denominated in Canadian dollars.[28] For the 10% of debt denominated in foreign currency, there is exchange rate risk since if the Canadian dollar falls in value, a larger quantity of Canadian dollars is needed to repay the debt.

The level of government (central, state, or local) responsible for government programs differs across countries.  For this reason, international fiscal comparisons are usually made on a total government, national accounts basis.  For Canada, total government includes the federal (central), provincial/territorial, and local governments.  Another reason to measure debt on a total government basis is that the federal government may be viewed as responsible for the debt of other levels of government.  For example, Newfoundland asked the federal government for debt repayment assistance in March 2020.[29] Any aid delivered to one province would reduce the resources the federal government has available for its own debt repayment responsibilities, and to support debt repayment in other provinces.  

According to the International Monetary Fund (IMF), Canada’s general government gross debt for 2019 was 88.6% as a percentage of GDP.[30] (To allow for consistent international comparisons, Canada’s debt data is adjusted to exclude unfunded pension liabilities of government employees’ defined-benefit pension plans.[31] Canada’s general government debt, including unfunded pension liabilities, would be about 104% of GDP on a gross basis in 2018.[32]) The IMF says in 2018 Canada’s general government gross debt would be 73.7% of GDP, just below the average debt level of economies with AAA ratings, if accounts payable are excluded to make its debt value internationally comparable.[32]

The gross debt to GDP ratio for countries the IMF classifies as Advanced economies that have a population of at least 5 million is shown in the table below.  In 2019, Canada had a lower gross debt to GDP ratio than fellow G7 countries Japan, Italy, the United States and France, but a higher ratio than Germany and the United Kingdom.

General Government Gross Debt, Percent of GDP

Source: International Monetary Fund, World Economic Outlook Database, October 2020.  Numbers for 2020 are projections.

In its staff report released in 2019, before the COVID-19 pandemic, the International Monetary Fund says the Canadian federal government experienced favorable economic conditions since the 2018 budget that led to sizeable windfall gains: higher than anticipated revenue collections, lower transfers to households, and lower projected interest rates.  On the other hand, pressures loom large on the horizon at the provincial level, with annual health care spending growth expected to rise from 3% to 4½% over a 10-20 year timeframe, contributing to rising net debt to GDP ratios by around 2025.[33]

Yves Giroux, the Parliamentary Budget Officer (PBO), finds fiscal policy is sustainable over the long term for the federal government, but is not sustainable for seven of ten provincial governments.  The deterioration in provincial government finances over the long term is due chiefly to the negative impact of the pandemic, lower oil prices, and rising health care costs from population ageing.  When the PBO defines fiscal policy as unsustainable, he means changes in current fiscal policy are necessary to avoid excessive growth in government debt.  (The PBO analysis assumes the pandemic budgetary response measures are temporary and are withdrawn as currently scheduled.  Fiscal policy then reverts to its pre-crisis setting with no new programs or extensions.)[34]

The total financial liabilities or gross debt of the Canadian consolidated provincial, territorial and local governments (PTLG) was $1,260 billion in 2019 (the fiscal year ending 31 March 2020), as shown in the table below.  The debt is likely to rise in 2020, as decreased revenues and increased program expenditures due to COVID-19 resulted in additional borrowing, mainly in the form of provincial bond issuances.[35]

The value of provincial outstanding debt securities liabilities varies from 24.1% expressed as a percentage of GDP for British Columbia, to 69.6% for Manitoba.  Debt securities comprise the largest component of gross debt and are relatively straightforward to measure.  (Another major component of gross debt, government employee pension plan liabilities, is more difficult to measure as it varies with a plan’s investment returns and member longevity, for example.)

Provincial government gross debt is a substantial proportion of the $2.244 trillion of public debt obligations of Canadians.  At $1.260 trillion, gross debt of the consolidated provincial, territorial and local governments (PTLG) exceeds the federal government’s gross debt of $1.057 trillion.  Similarly, the outstanding debt securities issued by the PTLGs, at 37.9% as a share of GDP, surpass the federal government’s 33.4% share of GDP.

Source: Statistics Canada, Canadian government finance statistics, statement of operations and balance sheet for consolidated governments, Table 10-10-0147-01, https://doi.org/10.25318/1010014701-eng; and Canadian government finance statistics for the federal government, 10-10-0016-01, https://doi.org/10.25318/1010001601-eng.  Gross debt from “Memorandum items, liabilities at nominal value.” Debt securities at nominal value is calculated as debt securities at market value - (liabilities at market value - liabilities at nominal value).  Calculations as a percentage of gross domestic product (GDP) are based on estimates of GDP in 2019 at current market prices, expenditure-based, available in Statistics Canada, Table 36-10-0222-01, https://doi.org/10.25318/3610022201-eng.

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Data for the provincial governments are consolidated. Consolidation is a method used to present one overarching statistic for a province that eliminates all transactions and debtor-creditor relationships among different government units within a province. These units include the provincial government, health and social service institutions, universities and colleges, municipalities and other local public administrations, and school boards. Consolidated data can be compared across provinces because consolidation takes into account differences in provincial administrative structures and government service delivery.[36]

Consolidated data for the Canadian general government combines federal government data with provincial, territorial and local governments, but excludes data for the Canada Pension Plan and Quebec Pension Plan.[37]

In the table above, debt securities are measured at nominal value, rather than market prices. The nominal value is most relevant to the issuer because it indicates the amount that the debtor owes to the creditor at any moment.[38] In 2019, the market value of debt securities for the consolidated Canadian general government was approximately 12% higher than the nominal value ($1,782.5 billion compared to $1,592.6 billion.)[39]

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.

• Canadian federal budget
• Taxation in Canada
• Economy of Canada
• Ontario debt

General:

• Government budget deficit
• Public debt

International:

• List of sovereign states by public debt

• Canadian Debt Clock, by the Canadian Taxpayers Federation
• Canadian Governments Compared