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Trevor Tombe: Do Canadians have a debt problem?

Commentary

Dramatic headlines about household debt are everywhere: “Canada’s household debt is now highest in the G7,” read one headline. “Households now owe more than Canada’s entire GDP,” read another

It’s not just the media. The Bank of Canada is increasingly signaling that it is “more concerned than it was last year about the ability of households to service their debt.” And the CMHC’s deputy chief economist recently warned that Canada’s high debt levels make its economy more vulnerable to any global economic crisis.

This all sounds pretty dire. 

But do Canadians really have a debt problem? 

A deeper look at the data suggests things may not be as gloomy as these headlines suggest. At least, not for most households. Instead, we should focus much more than we do on the very real challenges facing young Canadians and avoid lumping all households together.

Of course, it’s certainly true that household debt is higher than in many other countries. In Canada, households owe an amount equivalent to 107 percent of the economy—behind only Australia among advanced industrial economies, according to the IMF. Just for comparison, consider the U.S., with a household debt representing 78 percent of their GDP. Or the U.K., with their figure sitting at 86 percent. And Germany? A modest 57 percent.

This is not a new development. Canadian household debt has been rising considerably in recent decades. Today, household debt exceeds 182 percent of income—roughly double what it was in the early 1990s.

But these particular statistics tell a misleading story if viewed in isolation. 

Households have not only been increasing their debt but have also dramatically increased their assets. So while Canadians owe a lot, they also own a lot!

This might even be a better way to think about household debt. Comparing it to GDP or to incomes is to compare stocks (debt) with flows (income or GDP). Better to compare like with like, i.e. debt (a stock) with assets (also a stock). After all, in the event of a crisis leading to job losses and declining incomes, those affected can lean on savings to meet their obligations. 

In short, we mustn’t forget the other side of household balance sheets.

And I’m not just talking about the ever-increasing value of real estate that Canadians own. Selling a home is challenging, both financially and sometimes emotionally too. Even if we look at just financial assets, which excludes real estate, you can see Canadian households on the whole are doing well. Financial assets are 600 percent of income—more than triple the total debt—and over 330 percent of GDP.

So by comparing total debt as a share of assets, we get a very different story. Instead of an intimidating upward climb, the chart below presents a steadier landscape. Debt as a share of assets remained within a range of about 15 to 20 percent for most of the past thirty years. Today, it’s actually on the relatively low end of things historically. Relative to financial assets only, household debt is barely over 30 percent—also in line with historical norms.

Let me be clear, though: this is not to suggest that all Canadians are having an easy time with debt during a time of rapidly rising interest rates. The cost of servicing debt has risen from just under 6 percent of income at the end of 2021 to nearly 8 percent at the end of 2022. That’s a sharp change and an interest burden not seen since 2009. Mortgage interest payments also reached 4.5 percent of household income at the end of 2022, the highest since early 2000.

But these rising burdens are not evenly felt. The situation facing young families and new home buyers is particularly acute.

Consider younger families that have not yet built up a substantial cushion of liquid savings and must take out considerable debt to access unaffordable housing in many cities. By the end of 2022, households led by those under 35 found their debt burdens outweighing their financial assets. In households headed by someone aged 35 to 44, debt amounted to 80 percent of their financial assets on average. Debt burdens decline sharply for older households.

Young households are also typically new home buyers. The proportion of new homeowners who are devoting more than a quarter of their monthly income to mortgage payments is now substantially higher than it has been in the recent past. Today, nearly half of these buyers find themselves in this situation—more than double the normal share in most previous years. And while I don’t have data, these buyers are almost surely dominated by young Canadians.

This is where the risks are. Recessions normally lead to large increases in the share of households that can’t make a mortgage payment on time—a fact of the data that is strongly related to changes in the unemployment rate over the past half-century. That’s a real and serious risk, but not one faced by the majority of households. Indeed, it may not even be a concern for the average household. 

But it most certainly is a risk for most young households. Little wonder that young Canadians are generally pessimistic

Addressing this appropriately means a targeted response, with concrete policy ideas. “If there is a battle for the hearts and votes of young Canadians,” as Stuart Thomson noted in these pages recently, “it likely won’t be won with soaring rhetoric and patriotic appeals.” 

In short, we should take the typical coverage surrounding Canadian household debt levels with several large grains of salt. Digging deeper into the data makes clear that Canada’s debt situation may not be as ominous as it first appears. At least, not when considering the overall picture. 

Headlines that paint all households with the same broad brush divert attention from the genuine challenges confronting young Canadians. That’s where our focus should be.

Thomas Jarmyn: The Johnston Report was inadequate. Here’s how to properly investigate foreign interference in Canada

Commentary

In light of the NDP motion that calls on David Johnston to step down in his role as special rapporteur on foreign interference, there are growing questions about what an alternative process might look like, including the scope, mandate, and possible commissioners.

My answers to these questions are based upon military experience, almost thirty years as a lawyer, three years as counsel to the minister of public safety responsible for national security matters, and three and a half years as head of an administrative tribunal.

Let me first highlight some of the weaknesses in Mr. Johnston’s initial report:

  • The report concludes that there “should not and need not be a separate Public Inquiry” because the leaked materials could not be examined in public given the sensitivity of the intelligence. The easy response to this is to consider the inquiries of Justices Rouleau (POEC), O’Connor (Arar), and Major (Air India). Each inquiry considered sensitive information and provided useful redacted summaries that supported their final conclusions.
  • The report appears to have been prepared based upon documents and briefings that were proffered by the government and its agencies. The report does not appear to have been based upon an investigatory or inquisitorial model. Rather it seems that Mr. Johnston consumed the information that was offered on the government’s menu.
  • Striking as well is that neither Mr. Johnston nor his Counsel, Sheila Block, have any considerable experience in national security matters nor experience in government handling national security files. The effect of this is a willingness to take at face-value assertions regarding the handling and dissemination of intelligence. Either the Public Service has permitted a significant degradation in the processes used to disseminate intelligence today from those used in 2010-2013 or the difficulties described to Mr. Johnston were greatly exaggerated.
  • Mr. Johnston did not have the power to follow the evidence. Without the power of subpoena and the ability to compel documents, he was left to rely upon what was given to him. There is no assurance he received the full picture. In fact, from the absence of discussions with the Elections Commissioner or the RCMP, it is apparent that he did not.

What would a better solution have been?

Any solution must address two issues of concern:

  1. What foreign interference has taken place and what are its impacts?
  2. What should Canada do about it?

Those questions need not be answered in the same venue. Answering the first question would require investigation into the operations of several agencies. It is also the question that is most likely to require consideration of intelligence information.

Consideration of how Canada should respond to foreign interference operations is going to be less about intelligence and more about hard choices that have to be made. Canada’s response will affect diaspora communities, have economic impacts, affect public funding of research, and how political parties operate (to name a few of the issues).

However, both questions may be addressed under the Inquiries Act. The first step would be to appoint a commissioner to conduct a departmental investigation under s. 6 of the Inquiries Act. The same individual would be appointed with respect to the:

  • Privy Council Office
  • Public Safety Canada
  • Global Affairs Canada
  • RCMP
  • CSIS
  • Elections Canada

The commissioner’s mandate would be to assess the scope of foreign interference in Canadian governance. Without limiting the scope of this mandate this would include:

  • Selection of candidates at any level of government,
  • Influence of nomination and election results at any level of government,
  • Operation of unauthorized foreign government agencies or outposts in Canada.

The ideal commissioner would be a current or retired judge of the Federal Court of Canada who has experience in proceedings related to national security. This will ensure the commissioner is aware of the strengths and weaknesses of intelligence and is experienced in evaluating and testing that information. The commissioner would be entitled to counsel in the matter. Given the need to have this work done in a short time frame and to ensure experience counsel the commissioner’s counsel should be drawn from the “List of Persons Who May Act as Special Advocates.

The benefit of appointing someone in this manner is that the commissioner has broad powers under ss. 7 to 10 to obtain evidence. The commissioner could compel witnesses to appear; a witness who lies subject to perjury proceedings; and a person under summons who fails to appear is committing a summary offence. The commissioner also has the right of entry into any premises and to compel production of any document necessary to fulfill the mandate.

The commissioner would be mandated to author a report setting out the nature of foreign interference in Canada. There would be both a public and classified version of that report. The report would also include recommendations to improve governmental response to foreign interference. The expectation would be to have the report written within six months of commencement.

The second stage would be to appoint a Public Inquiry under s. 2 of the Inquiries Act. Expertise in the matter of national security is not as critical here. Although if there was only going to be a single commissioner a background in such matters would be important. The question to be answered by the s. 2 inquiry would be “How should Canada respond to foreign interference efforts?” The inquiry would have access to both the public and classified versions of the departmental inquiry. 

At this stage, the public inquiry would be less a matter of past intelligence and more a weighing of consequences of choices. The inquiry would hear from non-government actors about the consequences of foreign interference within their communities or sectors of the country (some of this would likely be in camera in order to protect witnesses). It would seek feedback regarding the consequences of proposed responses and evaluate responses against the history of foreign interference in our society. Finally, it would make recommendations regarding responses, both legislative and policy, to address the problem of foreign interference.

Some will ask “How is this process different from the one put in place by the present government?” Run by someone with experience in the national security field and the power to follow the documents and information rather than relying upon what is given to him by the government, this process is far more likely to arrive at the truth. The power to compel evidence will protect witnesses and whistleblowers from allegations they have breached the Security of Information Act as well as protect them from spurious defamation suits designed to intimidate witnesses.

This two-stage process has the advantage of gathering all of the information necessary to define the problem of foreign interference in Canada. It would have that information evaluated by an individual with expertise in the field. That evaluation would then be turned over to a public process that would seek broader input as to how best to respond.