Back to the Future – Part 1

We here at The Centre for Strategic Centrism are always seeking new features to excite your senses and spark your cerebral cortex. Today we unveil a new feature at The Centre: Back to the Future. It’s not just a great movie franchise anymore, my friends. Each week (well, whenever we darn well feel like it really) we will invite a prominent figure to join us in the time machine and travel back to a simpler time.

Our first guest is none other than President of the Treasury Board Vic Toews (who is also President of the Canadian Chapter of the Moustache Afficianados). He and I will travel all the way back to 2002 to discuss the impact of debt on Canadians. So without further adieu, let’s give a warm round of applause to Mr. Vic Toews…

A Legacy Of Debt

The Fraser Institute recently released its analysis of Canadian government debt.  The news is not good.  While it is true that the federal government has been able to eliminate its annual budgetary deficit since the mid-1990’s, that is small comfort for those who are worried about the continuing rate of government spending and public debt.  The report points out how serious the issue of government debt remains in Canada.

The Fraser Institute study reveals that the net direct debt of all three levels of government in Canada fell from $851 billion to $797 billion between 1997 and 2001.  However, this is a small drop when compared to the overall increase in the debt over the last decade: it was only $533 billion in 1991.  In other words, the Canadian debt has increased $264 billion over the last decade.

Even the modest success that governments have had since 1996 in eliminating annual deficits and beginning to pay down the mountain of public debt is more than offset by increases in other government liabilities, which grew significantly from 1996 to 2001.  While the total government debt may have decreased by $54 billion since 1996, the total liabilities under programs such as the Canada and Quebec Pension Plans, the Old Age Security, and the Medicare system have increased by $279 billion during the same period of time.

The Fraser study points out that the largest portion of the total program debt is made up of “un-funded liabilities.”  An un-funded liability arises because the estimated future revenues required to support a program fall short of the expected future payouts of benefits under those programs.  The funding assumptions that these programs were based on at their inception have proven false.

There is little comfort in examining Canada’s direct debt burden relative to the rest of the countries in the world.  Canada ranks 63rd overall among 126 jurisdictions.  More important, however, are the relative rankings generated by comparisons with other high-income nations.  Canada has one of the highest debt burdens among high-income countries, ranking 17th out of 19.  Only Italy and Belgium rank lower.

Un-funded liabilities that are not addressed will translate into more debt.  In the words of the Fraser study we can only address this problem if Canadian governments do not assume new and larger obligations and if we focus our attention on the long-term problems built into the existing programs.  This is not a time for any politician to create a political legacy by implementing new programs.

If we put off considering all the alternatives for achieving the goals of our important social programs, the crushing economic reality that is generated by government debt – our collective debt – will eliminate many of those alternatives for us.  Better to make the hard choices now.

Let me just thank Mr. Toews for joining us here and remind you to come back soon for another exciting round of Back to the Future!

Filed under: Oh, Canada