While the federal government seeks to rationalize its debt-financed spending based on international comparisons that show Canada with the lowest level of debt in the G7, this is inappropriate and obscures the actual nature of our country’s debt position, argues a new Fraser Institute report authored by Jason Clemens and Milagros Palacios.
As they explain, two broad measures of debt are used. Gross debt, which includes most forms of debt, and net debt, which is a narrower measure that accounts for financial assets held by governments.
When using net debt as a share of the economy (GDP), Canada ranks 11th lowest of 29 countries and lowest amongst the G7. But when using gross debt as a share of the economy, Canada falls to 25th of 29 countries and 4th in the G7.
This drop-off of 14 spots when shifting from net to gross debt is the largest change in indebtedness rankings of the countries measured. The reason for this dramatic decline is that net debt includes the assets of the Canada and Quebec Pension Plans, which, unlike most other industrialized countries, invest in non-government assets including equities and corporate bonds.
“The idea that the assets of the Canada and Quebec pension plans are available to governments and should be counted against the debt distorts the gravity of Canada’s indebtedness,” says Clemens.
All in all, a measure of caution should be taken when assessing Canada’s indebtedness compared to our advanced economy peers so as to fully understand the risks of continued debt-financed spending moving forward.
