Author: Casey Vander Ploeg
Debt levels in Canada are extremely high. Based on the 1997 budgets, total tax-supported debt and unfunded pension liabilities of the federal and provincial governments will reach $953 billion by the end of March 1998. Only the federal government maintains an AAA rating on its domestic long term debt, and even then, the outlook is “negative.”
Total interest costs estimated in the 1997 federal and provincial budgets will exceed $68 billion this year alone. In 1987/88, federal and provincial interest cost $40 billion. Over the last ten years, interest on debt has been one of the fastest growing government expenditures. For all governments except two, interest costs have grown much faster than program spending.
Federal, provincial, and territorial deficits have been reduced significantly over the last five years. Five of the ten provinces have eliminated their deficits and three others are very close. Despite numerous surpluses expected across the provincial landscape, the size of the federal deficit and the deficits of some provincial governments outweigh the modest surpluses recorded elsewhere.
For most governments, more of the reduction in their deficits has occurred due to revenue increases than cuts in program spending. This raises the question of whether today’s lower deficits can be sustained when the economy takes a downturn.
Some of the debt is in foreign currency, and a significant amount also has a maturity of under one year. This makes the debt sensitive to interest rates should they rise. While the economy is growing, it is doing so at a slower rate than any of the last two decades. The threat of a future economic recession also increases with each passing year.
To reduce the risks facing governments as they manage their fiscal affairs, serious consideration must be given to making debt repayment the number one priority.
Canada West Foundation’s Red Ink series was launched in 1993 to help Canadians understand the deficit and debt issue and gain a sense of control, ownership, and responsibility for it.